a stock purchase has no effect on the tax basis of the Company’s assets. Instead, he will be taking a stepped up basis in the stock purchased equal to the amount he pays for the stock, and the taxable income inherent in the Company’s assets remains inherent in the assets. Johnsons Services is already showing losses. While issuing debts in JS may give a rise to debt to equity ratio, the company should be careful in considering equity financing not to trigger an ownership change under Section 382 which may lead to limitations of using NOLs. Also, with even higher liabilities, it may be difficult to meet the debt service agreements if the company doesn’t have enough cash flow from operations.
3. What estimate of the market risk premium should be employed in calculating the cost of capital for Ameritrade? 4. Ameritrade does not have a beta estimate since the firm has been publicly traded for only a short time period. Exhibit 4 provides various choices of comparable firms.
Inversely, when a share repurchase is seen as treasury stock, the cost of the treasury stock is naturally disclosed as a decrease in total shareholders’ equity. Alcoa would report the purchase of the treasury stock by debiting treasury stock and crediting cash for the charge of the purchase. The treasury stock ought to be disclosed independently in the shareholders' equity area of Alcoa’s balance sheet as an unallocated cut of shareholders' equity. These shares are treated as issued although not part of common stock outstanding. If subsequently resold for a sum larger than the cost, Alcoa should report for the sale of the treasury stock by debiting cash for the sale cost, crediting treasury stock for cost, and crediting additional paid-in capital from repurchased stock for the excess of the selling price over the cost.
There is a noticeable reduction in the receivables line and increase in cash. This indicates that the company is not extending as many dollars of purchases on credit or that the turnover for payment is faster from the customers. The total liability has increased but is a less of a percent total than in 1996. The largest increase in liabilities is in long-term debt. This debt would be long-terms loans that Coke has taken for operating and expansion expenses.
Using product offered by Continental Bank would require a higher cost for J&L, and illiquid compared with NYMEX. However, they won’t need to post a margin at the beginning of the contract. The use of a monthly average price a net would be an advantage to J&L. 3. Using the estimate of 4.5 million gallons per month, how would you construct a futures hedge for the next 12 months?
Market Value of Business Asset 41,058 Cash 2,564 US Government Securities 20,024 Value of Financial Investment 22,588 Total Asset Value 63,646 2. Terminal Value Terminal value based on book value of invested capital is not valid assumption because this is a backward looking method of assessing terminal value. It does not take into account future value creation of the firm. Instead, we used the FCF method where we assumed that FCF grows at a constant rate “g” after the forecast period. This method is superior to the book value method since it is forward looking.
However, if closer examination is undertaken, it is clear to see that the general retail and apparel businesses are struggling while footwear and furniture have been flourishing. Its apparel business has dropped in operating earnings from $66M in 1986 to $20M in1988. This represents a -19.70% drop in earnings as a percentage of total Interco earnings from 1987 to 1988. The general retail business has been stagnant. Its earnings slightly increased while its business has not grown much.
On competitive terms, SureCut is not risky at all – it has been on the market for more than three decades, and based on its historical results, it is expected to continue its financial growth, notwithstanding competition from companies providing for cheaper scissors and shears. On operating terms, SureCut may be risky in terms of liquidity. While the company usually had sufficient capital to cover permanent requirements, i.e., it remains profitable during a 12-year period, the company usually obtains short term borrowings from banks during July to December of each year, when additional working capital was needed to support a seasonal sales peak. 2.What are the characteristics of SureCut’s need for external finance? What is the timing, magnitude and duration of the needs?
Marriott estimates its equity beta to be 1.11. Based on this information, if Marriott had no debt in their capital structure, I believe their equity beta would be lower, more in line with the S&P 500, because adding debt to a firm increases leverage in their operations. If a firm has more leverage, they have more room to take risks and this reflects a higher beta, which in turn leads to greater returns. This series of events is one of the main factors as to what lead to the immense growth of Marriott throughout the 1980’s. Note: I am not
1.What is the impact of the December 1993 shipments of conventional lenses to Bausch and Lomb 1993 financial statements? Is the impact significant? The impact was:- i)Increased revenue by $22M ii)Reduced inventory by 1.8 million pair. Based on the COGS of 45%, this could mean a reduction in inventory of close to $10M. iii)There is very little increase in SG&A as not much was spend in terms of sales effort.