Finally we conclude with the strategic growth plan post acquisition. Optimal target capital structure Optimal target capital structure is a desire of corporations to maximum it’s value. This structure would be to balance the ideal debt-to-equity range and keep the firm’s cost of capital at a minimum. We need to look at the mixture of debt which would also include preferred stock, common stock and other debt. The advantage of this target capital structure offers the lowest cost of capital resulting from its tax deductibility.
Therefore, we assume she would be interested in quality stocks with are fairly priced. This report reviews and examines the analysis by Ford and Cohen. In our analysis, we re-perform the weighted average cost of capital (WACC) analysis and recalculate the cost of capital for Nike. The Dividend Discount Model and the Earnings Capitalization Model are also adopted to compute the cost of equity, apart from the CAPM method. With our new estimate of the cost of capital, Nike’s stock has been re-evaluated in the Discounted Cash Flow valuation.
Assumption #1 - The yield of the Publicly traded Nike debt holds for the entire debt position. Assumption #2- We can use the price of the currently traded Nike bond to determine the market value of debt, by multiplying the current price by the book value of debt. I. Single cost of capital is appropriate because of the non-divergent business segments that possess similar risk profiles. II.
As for stockholders they mainly use this information for forecasting dividends, earnings on the free cash flow. Question 2 What qualitative factors should analysts look for when evaluating a company’s likely future financial performance? Explain. When evaluating a company's future financial performance, some qualitative factors that should be considered are future prospects, the current environment weather it may be legal or regulatory, the competition , economy, the level of dependents on the
In other words, the cost of raising fund is the firm’s cost of capital. Estimate a firm’s cost of capital is important because can help conclude required return for capital budgeting projects. Usually, the investor only picks up the project which provides higher return and lower risk on investments. Since the cost of capital is the minimum return required by investors, manager should invest only in projects that generate returns in excess of the cost of capital. Cost of capital can help define the acceptability of investment opportunities.
It is useful when trying to see at what prices a large quantity of stock are trading outside the market in a merger. 4. No. DFA believed in efficient market theory, which implied that the price had already reflected all of the market information. So it was not necessary to do fundamental analysis.
In modern finance theory (Manne, 1965), shareholder wealth maximization that are in line with a company’s business strategy is stated as the rational for investment and financing decisions made by managers. This means that firms should invest when the sum of the present values of future cash flows exceeds the initial project outlay. With M&A, the shareholder wealth maximization criterion is satisfied from the bidder’s perspective when the added value by the acquisition of a target company exceeds the cost of acquisition i.e. the transaction costs and the acquisition premium. Likewise, managers of targets would engage in M&A activity only if it results in gains to the target shareholders.
Executive Summary Cottrill Inc. had a 1 week trial with Saxton’s pagers but had a major technical issue with them near the end, which has so far been resolved. Whether Saxton’s pagers will have additional problems is unknown. Cottrill Inc. equipment failures can cost the company around $200,000 per hour and on average have problems once a week. Judy want to make the right decision in regards their pager supplier, which could result in a great annual saving for Cottrill Inc., or possible problems which could create a massive loss. Through analysis, it might be safer to stay with Tallant or prolonging a trial period with Saxton to ensure stability.
According to Robert E. Scott and Christian Weller, “further increases in real short - term interest rates herald a slowdown.” Further evidence that suggests a recession was on the horizon was information released from the National Bureau of Economic Research that states, “A peak marks the end of an expansion and the beginning of a recession.”(The Business Cycle Peak, March 2001.) During an expansion, however the economy is experiencing normalcy, and during this period the economy is between a trough and peak. The National Bureau of Economic Research, however, defines a recession as, “ a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and the wholesale-retail trade.” (the Business Cycle Peak.) Therefore, when a peak date was determined in March 2001 it marked the end of an expansion that began in March 1991, and hence the beginning of a recession. This marked the end of the longest economic expansion that lasted ten years of rising incomes and employment.
Ratio Analysis enables managers to compare its performance and condition with the average performance of similar businesses in the same industry. This is done by comparing the ratios of the company with the average of other similar businesses for several years, concentrating on any unsuccessful changes that may be beginning. Ratio analysis may also provide the early warning factors that could resolve problems before they increase and completely destroy the business. (Harold, 2009) Ratio analysis detailed calculations are shown below: Rate of Return on Net Sales: Is Net Income ÷ Net Sales Rate of Return on Total Assets: Net Income + Interest Expense ÷ Average Total Assets Return on Stockholders Equity: Net Income – Preferred Dividends ÷ Average Common Stockholders’ Equity (Horngren, Harrison, 2008) Working Capital: Current Assets – Current