It is standard practice for companies to discount future cash flows at a predetermined discount rate to determine whether or not the company will be profitable. However, using performance compared to hurdle rates would be somewhat challenging in that managers would have an incentive to underestimate a project’s true cost of capital in order to consistently beat their estimates. 2. What is the weighted average cost of capital for Marriott Corporation as a whole? What type of investments would you value using this WACC?
The income statement is important because it will show whether the company’s revenue exceeded expenses for a specific period resulting in net income or the amount the company may have lost because the expenses exceeded the revenue. The retained earnings statement is equally important because it will indicate the exact reason why the company’s retained earnings increased or decreased over the reporting period. The balance sheet is important because it is the overview of the company’s financial condition at the time of the reporting period and the statement of cash flow’s is important because “Reporting the sources, uses, and change in cash is useful because investors,creditors, and others want to know what is happening to a company’s most liquid resource.” (Weygandt,
What is more, a company may choose to pay dividend as the consideration for their investment, because high dividend payout is important for investors as dividends provide certainty about the company's financial well-being. Dividends are also attractive for investors looking to secure current income. In addition, some analysts indicate that how the decrease and increase of a dividend distributions from Champion can affect the price of its security. Companies like Champion that have a long-standing history of stable dividend payouts would be negatively affected by lowering or omitting dividend distributions. So it would be positively affected by increasing dividend payouts or making additional payouts of the same dividends.
But logically, the bonuses were for business productivity. How was the business productive if they received federal bailout money? It was said that the bonus money was in their contracts. Their clients took major loses and they take the bonus. I think that a business leader needs to act and conduct themselves in the best interests of their employees, and clients.
But its payout ratio was unsustainable. Hence, the optimal way is to reduce its shares outstanding with a stock repurchase. by repurchasing shares, the company could adjust its unbalanced capital structure, and even raise debt to finance its purchase. It also will send a signal to the market that the share may currently be undervalued, and thus boost the share price. If the share is fairly priced, market could also interpret the repurchase behavior as a positive signal that the board has confidence in the company’s future performance.
This translated into a market value gain for Berkshire Hathaway of $2.55 billion. In the short term, this was windfall for both parent companies. As a consultant to the shareholder’s, I would speculate that the increase in the share prices were due to the fact that Scottish Power was divesting itself of an underperforming asset where Berkshire Hathaway has market confidence in turning PacifiCorp around to being a higher performing asset. This market confidence is derived from Berkshire Hathaway’s history of growth centered investments. The shareholders have a vested interest in the implied value of PacifiCorp because it is an indication of the return on investment the shareholders can expect.
An internal stakeholder is someone linked internally to the organisation that has certain interests which they might look into such as managers might employees might want to have higher wages and owners would want their shares prices to increase to give them more profit when they decide tom sell them. External stakeholders are individuals or groups such as suppliers, the public, lenders and customers which influence and are influenced by an organization but are not involved internally with the business. There are several types of stakeholders as seen below. Michelin Manufacturing Company Customers The interests of the customers are too able to buy good quality tyres that will be efficient, cheap and will be able to last a long time. Also to make sure the tyres are attractive and look good on their specific car.
Scholars such as Friedman suggest that treating the economic responsibility as the most important responsibility of a business, is called a profit-maximising view, and “the social responsibility of a business is to increase its profits.” This kind of view states that a company should be operated on a profit-orientated basis, with its sole mission being to increase profits. This approach would seem to benefit stockholders, as well as stakeholders, as the stockholder is going to benefit from the profit made by the company and will gain something back from the company, however problems can occur when the businesses and companies do not balance their ethical responsibility, as they can therefore be perceived as greed and unable to balance their corporate social responsibility, and will cause a bad name for a business. So although the stockholder may also be gaining profit by doing this (what the company sees as doing the right thing) is not necessarily the right thing to do in terms of stakeholders. However, Friedman would argue that as long as the business is maximising its profit, that is the main point and so the loss of the stakeholders is less important. This argument can be deemed as weak as Friedman’s approach does not mean that stakeholders can be benefited alongside stockholders, and so disagrees with
Going public lowers a company's cost of capital. This is because investors are willing to pay a higher price for a company's stock if the shares are publicly issued due to that the shares can be sold easily compared to the privately issued shares. In addition, publicly traded businesses are usually better known than non-publicly traded businesses. The company can gain better image showing that the company is stable and continuously trading. However, there are some disadvantages: Going public is an expensive process, including legal and accounting fees, filing fees, travel costs, printing costs and underwriter's expense allowance.
The cost to the government and the taxpayer of keeping the business’ running and making sure they efficiently pursue their desired function can have high opportunity costs.This is especially prominent in a time of recession/economic downturn when the money could be spent in other ways to increase growth the economy,such as macroeconomic policies including fiscal and monetary policy. On the other hand public ownership does have some positives. The main benefit is that of public interest, this includes the fact that the business is not there to operate for profit, it is there to serve the consumers. This point could also be tied in with the fact that any profit made by the business’ if government owned will go back into society. This is obviously beneficial if the business’ are making profit, but it could be argued that a business should not be making profit, but instead charging lower prices to consumers initially.