Page 484 has formulas!! 6. When the firms maintains a target leverage ratio, we compute its levered value V^L as the present value of its free cash flows using the WACC, whereas its unlevered value V^U is the present value of its free cash flows using its unlevered cost of capital or pretax WACC. 15.3 Recapitalizing to Capture the Tax Shield 1. when securities are fairly priced, the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage 15.4 Personal
Cash flow is more vibrant and holds to the true value. Cash flow is concerned with the movement of money in and out of a business. The concept of accounting profit can be somewhat narrow with its results only looking at income and expenses at a certain point in time and is taxable. By comparing the information provided from the two reports the free cash flow information from will provide the company with a much truer understanding how the project will be performed. Comparing the company’s net income to its actual cash generated, an investor can determine whether the company is more aggressive or conservative in accounting for its performance.
This is where the business sells its accounts receivables to a business that specialises in debt collection. The debts will be put at a reduced amount by the factoring business, but the advantage is that it provides an injection of cash into the business with funds to continue operating and stops the problem turning into a solvency issue. Woolworths began using a factoring company to collect its accounts receivable at the start of 2015. This is a low-risk funding option for Woolworths and allows the business to meet its financial objective of liquidity. It saves the business time and effort involved in chasing debtors and allows management to focus on the prime function of grocery retailing, although it costs Woolworths a percentage of repayments to do this.
QUESTIONS 1. Table 1 contains the complete cash flow analysis based on GP Manufacturing’s basic information. Explain the inputs into 1) the net initial investment outlay at year 0, 2) the depreciation tax savings in each year of the project’s economic life, and 3) the project’s incremental cash flows? 1. Net initial investment outlay is $302,040.
Risk Factors of Bloomingdales Risk factors play a major role in today’s economy. Since we are stuck in the stagnation period and do not seem to be recovering for quite some time, businesses have to come up with a proper marketing plan that will help sell their products. All businesses suffer from the same risk factors. Some common risk factors include: product quality, price, brand loyalty, competition, managerial skills, etc. Many customers are shopping at lower priced stores because the economy is not allowing them to spend extra money.
NPV = $205,761 By using Net Present Value, investors can determine the expected profitability of a project. No, NPV would be the same for everyone since it is basically just an estimate of future cash flows. 3. Calculate the proposed project’s IRR. Explain the rationale for using the IRR to evaluate capital investment projects.
Fewer companies are willing to enter the market because of the SOX requirements that make going public too costly. Plus, the maintenance required to stay public is too expensive for smaller companies, forcing companies to look elsewhere to raise capital. Rising costs persuade large numbers of companies to exit the public markets to sidestep SEC regulation, creates two problems. First, the overall economy could suffer because corporations limit investment projects due to the higher-cost sources of capital to fund potentially new operations. Second, financially stressed companies that go dark are the very companies’ shareholders need to monitor usually and where transparency is most important.
Obviously it is evident that Henkel Iberica current process isn’t working due to challenges of forecast exactness and demand variability for all the products it offers. The evidence is clear in the data from 2000 to 2001 as overall sales increased 2.2% but net earnings decreased by 5.7%. For a company to be profitable, focus should be on net earnings and not sales and providing a wide range of products to satisfy every customer. The loss of earnings is most likely due to not having the right product mix and volume at the right time as well as lack of communication between sales and
Ratios include the current ratio, the current cash debt coverage ratio, the receivables turnover ratio, the average collection period, the inventory turnover ratio, and average days in inventory. Current Ratio - Expresses the relationship of current assets to current liabilities. Calculate the current ratio for Kellogg for 2007 and 2006 What do the measures tell us? A current ratio of .67 means that for every dollar of current liabilities, Kellogg has $0.67 of current assets. Cash Debt Coverage Ratio - Because it uses cash provided by operating activities, it may provide a better representation of liquidity.
Single taxation c. Limited liability d. Dividend policy e. Capital structure Answer: b S-corp Distribution is taxed only once at personal income tax rate. In other words, a single taxation 4. Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders? a. Decrease the use of restrictive covenants in bond agreements.