Since the 4.5 million is just an expected amount of fuel, J&L cannot achieve a perfect hedge in the future. They should estimate the accurate demand for fuel next year. 2. What are the pros and cons of using NYMEX contracts versus using the risk-management products offered by Continental Bank? Is the use of a monthly average price a net advantage or disadvantage to J & L?
Stockholders may assume when reading the financial statements that they would be receiving a higher return each month or quarter when in reality that would not be the case especially if they are planning on switching to LIFO. It is unethical to make a huge financial decision based on only short term goals. The Sabarnes-Oxley act of two-thousand and twelve, contains 11 sections detailing rules and regulations for financial reporting. The SOX act section 404 requires that management of
This action will help the company down the road as fewer liabilities will result in less cash outflow, and place the company in a position to manage through the construction downturn. Another upside in the balance sheet was that The Home Depot has reported a $63 million dollar increase in stock holder´s equity. This information will be used by potential lenders or investors to determine if this company is worth the investment. In this case, it appears that The Home Depot would be a good credit risk, based on the latest
The expected present value of potential cash flow is $10.76 if the drug is licensed. However, in this case Merck would discontinue the phase 3 study if the drug passed phase 2 for weight loss only. This is because under this scenario Merck would lose more money to continue phase 3 than not to continue phase 3. Question 5: According to the tree in Exhibit 1, the expected payoff without the information of whether it will pass phase 1 is 13.98. If Merck knows the drug will fail phase 1, it will never incur the 30M cost in phase 1.
Great summary of the report. Through these careful analyses are team was able to come up with the following conclusions and recommendations: • Mindersoft is undervalued at Novak Biddle’s premoney valuation of $3M. • Based on our valuation of $11.17M using the Venture Capital Method, Mindersoft should renegotiate the deal with Novak Biddle for a 15.19% equity stake, if they would like to keep their investment amount at $2M. • If Novak Biddle is willing to make a $1M investment and Mindersoft is willing to give a slightly higher ownership stake, we might be able to reach a common ground. • Due to the fact that Mindersoft does not have full patents on products and time is of the essence, investment is needed as soon as possible.
Solutions to Week 1 HW Chapter 1 E14. [LO 5]. Incremental revenue per day $2,500 Less incremental costs: Labor $700 Parts 500 Transportation 100 Office staff 200 1,500 Incremental Profit per Day $1,000 Opportunity cost = $1,000 per day 52 days = $52,000 Rent and depreciation do not enter into the calculation of the opportunity cost since these costs are not incremental (they will be incurred whether or not Ken decides to stay open on Saturday). P2. [LO 5 and 6].
My evaluation of Nike’s share price is based on Joanna Cohen’s analysis. In the following paragraphs I am going to point out the mistakes that Joanna has made and also give my suggestions in the WACC calculation First of all, for as much as over 95% of Nike’s revenue comes from sports-related business, I do agree with Joanna’s assumption of single costs of capital. Although cost of capital of non-Nike branded product may different from its main sport business, it has a minor effect on the cost of capital of the company as a whole. However, I found that she has made a few mistakes in calculating debt and equity weights and cost of debt. Debt and Equity Weights The first mistake in Joanna’s calculation is that the weights of Nike’s debt and equity should be based on the market value rather than book value mixes of Nike’s debt and equity.
Option two is the choice because the $2,716 savings difference in total interest from option two outweighs the $1,043 in interest savings from option one. Here the simulator reveals that loan option one is the correct choice. Loan option one is the best choice to solve the working capital shortfall because even though it has a higher interest rate, there is no prepayment limitation and has a total interest payment of only $32,603 after three months. The Financial Dictionary explains that “prepayment is good for the borrower because it relieves him/her of the debt, but it deprives the lender of interest he/she would have received otherwise” (Financial Dictionary, p. 1,
57). To figure out the contribution ratio one must divide the largest revenue source by the total revenues (Martin, 2001, p. 57). Valley of the Sun United Way’s largest funding source is from grants totaling 30,903,947 and the total revenue in 2012 was 63,588,104 (Ernst & Young, 2012, p. 4). The ratio is calculated at .48 which is still on the safe side. An agency should not be .5 or higher because then they would be too dependent on one source (Martin, 2001, p.
Methodology for Calculating Cost of Capital Joanna is correct to use the WACC method for computing the costs of capital. However, her estimation of the proportion of debt to equity is incorrect because she uses book values from the past instead of using the current market values. The reason why we must use the current market value of debt and equity is so that the estimate of Nike’s present day WACC is as accurate as possible. Using book values, even though it is historical information, is incorrect because we are focused on finding the present values for Nike’s capital structure. Capital Sources Book Values in Millions Debt Current portion of long-term debt $ 5.4 Notes payable 855.3 Long-term debt 435.9 $ 1,296.6 10.1% of total capital Equity