Uncertainty and protection The first mortgage loans generate interest earnings which are not much affected by interest rate fluctuations. These loans were financed by consumer deposits, which consist largely of 3 month fixed rate savings certificates. Due to the short duration and the increasing interest rates in the past, the deposits are highly sensitive the interest rate changes. Therefore, the mismatch between interest payable and interest receivable had to be solved. As showed in the table below the interest rates as well as the nominal value diverge from another.
I calculated an “inventory turnover ratio” which measures the number of times a company sells its inventory during a year. A high rate of turnover indicates easiness in selling inventory; a low rate indicates difficulty. In 2011, the inventory turnover was 6.1. By 2012 the ratio decreased to 5.2. The decrease may be due to a slow ability to turn around merchandise in sales and potentially due to paying a higher cost for goods.
Premier Investments Ltd dropped its current ratios sharply from 4.27 to 1.74. That indicates Premier Investments Ltd transferred its current assets to noncurrent assets or it got more current liabilities. However, it is still has less current liabilities covered it assets compared with David Jones Ltd. So David Jones Ltd needs to make a financial plan to meet the coming current liabilities, or they may get a financial crisis. Quick ratio Current ratio measures the current assets to be turned into cash to meet its debts in one year.
With these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Here the issue is of financing the merger. A firm’s optimal capital structure is that mixture of debt and equity than minimizes its weighted average cost of capital (WACC). Since the after-tax cost of debt is lower than equity for many corporations. It turns out that, while debt reduces a company’s tax liability because interest payments are deductible expenses, increasing amounts of debt raise both the cost of equity capital and the interest rate on debt because of the increasing probability of bankruptcy.
With a debt to equity ratio as above average as Verizon Communications’, the probability that the company will be able to pay off its’ debts if a liquidation was to occur is unlikely. Some factors that may be a contributing factor to Verizon Communications’ currently high debt to equity ratio is the acquisition of other firms, the purchase of complete ownership of Verizon Wireless, and recent deals with Netflix. However, according to macroaxis.com, Verizon Communications’ probability of going bankrupt within the next two years is “less than 46%” (2014). Verizon’s closest competitor, AT&T has about a 43% chance of going bankrupt in the next two years; many of the telecommunications industry companies are within the 43 to 50 percent range of bankruptcy within the next two year (macroaxis.com, 2014). Also, research analyst, Arie Goren, states that “Verizon will continue to benefit from the remarkable leadership of its wireless segment”; he further explains that “Verizon has compelling metrics and good earnings growth prospects”
There are certain steps that need to be taken to insure that CanGo can make profit from year to year. CanGo also operates at a high debt ratio. This means that it is imperative for CanGo to produce efficiently and not lag and any quarter of any year. This will prevent possible bind for cash or losing shareholders trust. CanGo has very low profitability ratios, low turnover ratios and a high debt equity ratio.
Should Mr. Jones convert Smithon to an S corporation and change the fiscal year end to a calendar year end? A: Converting Smithon to an S corporation has merit if the goal is for Smithon to remain controlled by a small number of shareholders. However, the equipment deductions for the corporation may be more valuable than it would be to Johnson personally. Either way, Smithon's value to Johnson will be the same, if he purchases Smithon outright. Changing to a calendar year end has little useful effect, and it requires that Smithon produce a short-year tax return from Dec to Jan, which is a relatively unnecessary administrative expense.
e. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price. Answer: a 3. Amram Inc. can issue a 20-year bond with a 6% annual coupon at par. This bond is not convertible, not callable, and has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund.
Is the use of a monthly average price a net advantage or disadvantage to J & L? Using NYMEX contracts will minimize the asset mismatch aspect of basic risk, along with a better liquidity. However, since diesel fuel is not a traded commodity, it cannot be directly hedged and J&L will suffer a certain amount of basis risk. J&L will also need to post a margin for their future contracts at NYMEX. Using product offered by Continental Bank would require a higher cost for J&L, and illiquid compared with NYMEX.
Financiering 6012B0217 Financiering Case 2012/2013 Vraag 1 a) Excel regression (ongecorrigeerde beta) equity beta van ING: 1.972874 ASML: 1,002967 Ahold: 0,395736 b) We know that there is a linear relationship between the stock beta and its expected return. So, if there is fewer stock the security market line will be steeper so, the beta will be smaller. Vraag 2 ßu = ßa= (E/(D+E)) x ße Net debt: Interest Bearing Debt – Cash and Cash Equivalents ING: 47284/(1234038+47284) x 1,972874 = 0,07280 Debt: 1247110-13072=1234038 ASML: 2773908/(1456616+2773908) x 1,002967 = 0,65763 Debt: 3406450-1949834=1456616 Ahold: 5910/(6215+5910) x 0,395736 = 0,192891 Debt: 8815-2600=6215 Vraag 3 a) ASML has a higher asset beta because it participates in an market which develops faster, so it has a higher systematic risk. Ahold has a lot of more diversity on his business. Ahold can better spread his risk.