I would make an investment in the company’s 5% convertible bonds. Sepracor’s ROA and ROE is above the average and showing that it is profitable; however, the company’s debt to asset ratio is above 1, which means that most of its assets are financed through debt instead of equity. Sepracor would be in trouble if its creditors were to start demanding repayment. C.) To make valid comparisons between Sepracor and Bayer, you would have to compare the rules for fair value under the U.S GAAP and iGAAP. Under IFRS, convertible bonds are separately recorded as liabilities and stockholder’s equities.
Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period? statement of retained earnings Income statement Statement of cash flows Balance sheet We commonly measure the risk-return relationship using which of the following? Expected returns Coefficient of variation Correlation coefficient Standard deviation What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70? 6.1 percent 10.2 percent 6.0 percent 5.9 percent Which financial statement reports a firm's assets, liabilities, and equity at a particular point in time? Statement of cash flows Balance sheet Statement of retained earnings Income statement As new capital budgeting projects arise, we must estimate__________.
Assignment 2: AirThread Connections Group 2: Taylor Bullock, Zoey Hourihan, Ben Kanter, Julie Ngai, Fernando Zavala FINE4600 Question 1: A. The discount rate Ms. Zhang should use for un-levered FCF for 2008-2012 is 7.30553%. Because the FCF are un-levered, this implies the firm has no debt. If the firm is all equity financed, the appropriate rate to discount the cash flows is the cost of equity. We calculated cost of equity using the CAPM method, where re = rf + B(EMRP) The case stated that the BBB+ rated bonds have an interest rate of 5.5%, or 125 bps over the current yield on 10 year US treasury bonds.
Assume that the bond is a zero coupon bond (i.e., the only payment is the one at maturity) and that company Z has no other debt outstanding. Other relevant parameters are as follows: • • • • • Company Z current asset value: €100 million Total bond issue face value: €80 million (i.e., leverage of 80%) Risk free interest rate: 2% Standard deviation of return on company Z assets: 30% Bond maturity date: one year from
Interpretation: The Quick ratio is computed by dividing cash plus accounts receivable by total current liabilities. Current liabilities are all the liabilities that fall due within one year. This ratio reveals the protection afforded short-term creditors in cash near-cash assets. It shows the number of liquid assets available to cover each dollar of current debt. Any time this ratio is as much as 1 to 1 (1.0) the business is said to be in a liquid condition.
Profit Maximization is the process that a firm uses to establish where the best output and price levels are, in order to maximize its return. There are two primary methods that can be used to establish profit maximization. One method is the Marginal Revenue minus the Marginal Cost (MR-MC) method. When utilizing this method economists assume that profit would be at its highest when MR and MC are equal, which denotes that for every item made MP=MR-MC. When / if MR is higher than MC then MP would result in a profit for Company A.
0.25 × 150 + 135 + 95 + 80 = $109.52 million 1.05 0.25 × 100 + 100 + 95 + 80 = $89.28 million 1.05 100 – 1= 12% 89.29 c. YTM = expected return = 5% d. 16-2. equity = 0.25 × 50 + 35 + 0 + 0 = $20.24 million total value = 89.28 +20.24 = $109.52 million 1.05 Baruk Industries has no cash and a debt obligation of $36 million that is now due. The market value of Baruk’s assets is $81 million, and the firm has no other liabilities. Assume perfect capital markets. a. Suppose Baruk has 10 million shares outstanding.
5, 6) Lima Parts, Inc., shows the following overhead information for the current period: Actual overhead incurred $ 29,400 2/3 of which is variable Budgeted fixed overhead $ 8,640 per hour Standard variable overhead rate per direct labor-hour $ 9.00 Standard hours allowed for actual production 2,350 hours Actual labor-hours used 2,200 hours ________________________________________ Required: What are the variable overhead price and efficiency variances and fixed overhead price variance? (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.) Amounts Variable overhead: Price variance $ (0%) (0%) Efficiency variance $ (0%) (0%) Fixed overhead: Price variance $ (0%) (0%) ________________________________________ P16-45 Overhead Variances (L.O.
This is the interest rate that would exist on a default free security if no inflation were expected. B. real interest rate 9. This theory argues that individual investors and financial
Finance MiniCase: Planning for Growth at S&S Air 1. Calculate the internal growth rate and sustainable growth rate for S&S Air. Internal Growth Rate: ROA x b / 1 – ROA x b ROA = Net Income/ Total Assets = 1, 537,452/ 18,308,920 = .084% B= Addition to retained earnings/ net income= 977,452/ 1,537,452 = .635% Internal growth rate= (.635 * .084) / (1- (.635 * .084)) = .564 This number is telling us that S&S Air can expand at a maximum rate of .564% per year without external financing, meaning retained earnings are the only source of financing. Sustainable Growth Rate: ROE x b / 1- ROE x b ROE = Net Income/ Total Equity (roa x em = net income/e) = 1,537,452/ 10,069,920 = .15 SGR= (.635 * .15) / 1- (.635 * .15) = .107 This number