d) minimize operational costs and maximize ﬁrm eﬃciency. e) maintain steady growth in both sales and net earnings. 4. Accounting concepts for a ﬁrm to create value it must: a) have a greater cash inﬂow from its stockholders than its outﬂow to them. b) create more cash ﬂow than it uses.
We can compute the levered value of the plant using the WACC method. Goodyear’s WACC is ￼ Therefore, ￼ A divestiture would be profitable if Goodyear received more than $47.6 million after tax. Problem 18-5 Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-Lucent’s debt cost of capital is 6.1% and its marginal tax rate is 35%. a.What is Alcatel-Lucent’s WACC?
Moreover, in Exhibit 6 we see that the correlation between Brown and Vanguard is much stronger (0.656) than the correlation between Vanguard and California (0.074). The strong positive correlation between Brown and Vanguard indicates that returns of those two investments move in the same direction and thus the portfolio is riskier. After performing the regression of each stock on the market index and
Hershey is larger company than Tootsie. The gap between them is evident in the free cash flow. Hershey is also able to leverage more. The current cash debt coverage ratio for Tootsie is greater implying that the cash flow from operating activities will pay for a higher proportion of current liabilities for Tootsie as compared to Hershey. The cash debt coverage ratio for Tootsie is higher indicating that the operating cash flow can meet a higher proportion of total liabilities.
The largest 60 projects earn higher revenue, however, they produce more salaries expenses and overhead allocated. The smallest 60 projects, on the other hand, have less revenue with less salaries expenses and overhead allocated. Therefore these projects finally end up with same net income. They are equally profitable. Question 2: There is a direct relationship between project Size and project profitability.
Learning about other companies this ratio, Wal-Mart’s debt to net worth ratio is not an exorbitant amount of debt, the company’s borrowing capacity is not bad, it is associated with a higher level of financial security, giving the business greater borrowing potential. (http://www.maofou.com/Value/Caibao/Walmart-balance-sheet.htm) Average inventory turnover ratio It is calculated that Wal-Mart’s average inventory turnover ratio is about 9 times per year. The supercenter’s inventory turnover ratio is 8 times per year, and Sam’s Club’s inventory turnover ratio is about 11 times per year. About stock keeping units, there are 10 thousand in supercenter and just about 4000 in Sam’s Club. Less inventory unit means fewer goods
Cash-based income: Revenues Received $6,000 Less expenses paid $5,000 = Income $1,000 3. Question 3: Please refer to Q2. What was Brady Brothers accrual basis income? Accrual-based income: Revenues Earned $12,000 Less expenses incurred $8,000 =Income $4,000 4. Question 4: Anderson Company’s balance sheet at the end of the year revealed the following information: Clients owe Anderson Company $35,300 for completed projects.
As a result of the increase of cost of goods sold, income before taxes declines and Walgreen’s pays less income tax than if they were to use the first-in, first-out method. Traditionally, companies using LIFO are valued more highly than those who use FIFO during periods of rising prices. Walgreen’s also offers analysts the LIFO Reserve, which is the difference between what the inventory is using LIFO as opposed to if FIFO was used. As of 2007 and 2008, Walgreen’s inventories would have been greater by $1,067 million $969 million respectively using a FIFO accounting method. Walgreen’s primary competitor, CVS, uses a combination of three inventory methods for each of their different business segments.
The asset purchase option will generate $700,000 million more tax obligation than stock purchase do. However, under the asset purchase method, the goodwill generated from this transaction could be depreciated over 15 years, or $900,000 annually over 15 years. To justify the price of $40 million, we adjusted an APV approach. We derived the unlevered beta from the comparable firm Modtech. Adding other assumptions to our valuation model, we concluded a firm value of $83.92 million, and 73% of the firm value is $65.17 million.