e. Although its stockholders are insulated by limited legal liability, the corporation's legal status does not protect the firm's managers in the same way; i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions. 3. Which of the following statements is CORRECT? a. In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business.
The WACC formula has to be modified to include the main sources of long-term financing of the firm such as preferred stock: W ACC = E D P RE + (1 − τ )RD + RP D+E+P D+E+P D+E+P where RP is the cost of preferred stock and P is the market value of the firm’s preferred stock. 3 Using the WACC formula It is straightforward to obtain most of the values for the variables in the WACC formula (let’s focus on formula (1) from now on): • The market value of the firm’s equity (E) can be simply estimated as the value of the firm’s shares times the number of shares. • The book value of the firm’s debt can be used as a proxy for the market value of the firm’s debt (D). • The corporate tax rate is given (ex. τ = 34% can be used as a proxy for federal tax rate in the US).
THE IRR RULE IS REDUNDANT AS AN INVESTMENT CRITERION BECAUSE THE NPV RULE ALWAYS DOMINATES IT IRR & NPV Net Present Value (NPV) is a measure used to determine whether a project is worth investing in. The NPV method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present value, using the required rate of return (RRR). NPV compares the amount that has been invested today with the present value of the expected future returns. In other words, NPV compares the amount invested today with the future returns after it has been discounted by required rate of return (RRR). The RRR can also be called as the discount rate, hurdle rate or the opportunity cost of capital.
Financial Impact Case Study Paper January 25, 2015 Financial Impact Case Study Paper According to Coyle, Gibson, Langley, & Novack (2013); “a major financial objective for any organization is to produce a satisfactory return for stockholders; the supply chain plays a critical role in determining the level of profitability in an organization” (pp. 154-155). Culp (2012) stated: “Global supply chains can increase efficiency, but they can also increase risk; The integration of risk management into supply chain management has often been limited, especially for organizations that have focused on reducing costs and limiting working capital levels as a response to difficult market conditions” (Para 1-3). In the case of CPDW the supply chain decisions regarding the type and number of warehouses utilized impacted their fixed assets. It was cited in the case that CPDW CEO realized that their basic metric for pricing square feet of space utilized is too narrow.
As CEO, Keith is determined to figure out why OSI stock is not performing as expected. His research leads him to a newer trend in company analysis called economic value added. EVA is a residual income approach that was modified and trademarked by a firm called Stern and Stewart. It is defined as after-tax profit that exceeds the required minimum return on capital. Computed by deducting the cost of capital from the after-tax profit, it is said to be the best measure of the true profitability of an enterprise because it is tied to cash flow and not earnings per share.
Identify the possible causes of conflict which may arise in this situation. A cause of conflict would be that it is not fair on the taxpayer because they do not have say in the company; this is because they only own a minority share. The taxpayers are giving their money to bail out the banks and in return they may not receive a sufficient return on their share. Once again the taxpayer is being forced to bail out a major bank without it being in the interest of the taxpayer. This links in with an argument from shadow chancellor Ed Balls who claims that Nick Clegg’s proposal has not been thoroughly thought through, because it is not in the long-term interests of the taxpayer.
a. Adjusted trial balance b. Comparative balance sheets c. Current income statement d. Additional information 4. The primary purpose of the statement of cash flows is to a. provide information about the investing and financing activities during a period. b. prove that revenues exceed expenses if there is a net income.
Executives are hired to act as fiduciary agents of their stockholders for the purpose of increasing wealth (Smith, 2003). He argued that CSR amounted to spending the stakeholder’s money that clouded decision making by reducing the firm’s focus on maximizing profits, thereby placing the firm at a competitive disadvantage (Smith, 2003). Friedman’s approach is practical and takes into account the interests of both firms and society. However, it is not realistic to think that a firm can separate business and social responsibilities. According to Mintzberg "the strategic decisions of large organizations inevitably involve social as well as economic consequences, inextricably intertwined...there is no such thing as a purely economic strategic decision."
TRUE AACSB: Reflective Thinking Skills Bloom's: Understanding Difficulty: Easy Learning Objective: 2-1 3. Smaller businesses are especially dependent upon internally generated funds. TRUE AACSB: Reflective Thinking Skills Bloom's: Understanding Difficulty: Hard Learning Objective: 2-1 4. An individual can only save and invest in a corporation by lending money to it or by purchasing additional shares. FALSE AACSB: Reflective Thinking Skills Bloom's: Understanding Difficulty: Medium Learning Objective: 2-1 2-1 Chapter 002 Why Corporations Need Financial Markets and Institutions 5.
This stands in sharp contrast to the early view of Miller and Modigliani (1958), who argued that in a well-functioning efficient market without taxes, informational asymmetries, and default costs no financial synergy can be found because the market value of company does not depend on its capital structure. However, a firm’s capital structure decision can matter if these assumptions are not true. The theory has two important caveats concerning its applicability; first, one of the merging firms must be experiencing financial distress. The theory is most directly applicable to marginally profitable start-up companies and existing companies that are financially distressed. Second, theory only applies when severe agency problems exist between the manager and the claim holders of the distressed firm.