And according to the Exhibit 7a, around 37.5% of the portfolio was in hedge fund (15% in marketable alternatives, 15% in L/S equities and 7.5% in fixed income) while only about 22.5% in private equity. In the hedge fund section, the old portfolio was broken down and Notre Dame’s hedge fund portfolio performance was negative although some high-levered strategies brought with high returns. And because Notre Dame favored compared-low levered strategies, hedge fund portfolio itself could not perform as well as the high levered. In the private equity portfolio, 20% went to VC firms, 30% went to growth equity and 50% went to buyouts. And the private equity portfolio had earned a remarkable return of 35% for the ten years ended June 30, 2008.
Thus this measure, to buy call options by selling stocks to SBC, is simply speculating. But Cephalon’s shareholders want Cephalon to hedge this risk if DFA doesn’t approve this projection. They want Cephalon to take some measures, such as buying puts, as well as speculating, to hedge the stock price’s downside risk. Capital gains from put option could reduce the loss caused by DFA disapproving the projection. Option Valuation Under SBC’s proposal, Cephalon would purchase 2.5 million capped call options from SBC in exchange for 490,000 shares of Cephalon common stock.
Pacheco (2012), using individual ratings emanated from Moody’s credit rating agency since 2006, analyze the impact of credit rating changes over the performance of a set of rated firms quoted in the Portuguese stock market. They determine a significant response of share prices to changes in the credit rating information and in the outlook. With this, this response seems to anticipate the announcements, either due to previous sovereign downgrade or to the effects of a market outlook. Also, when they are analyzing a specific period, they observed a strong negative reaction to announcements which is understandable given the greater influence and market sensitivity to rating agencies. Kaminsky and Schumukler (2002) analyzed the impact of changes in sovereign credit rating and outlook on financial markets in emerging markets, founding that downgrades were associated with two-percent increase in average bond yield spreads and about one percent decrease in average stock returns.
2. Critique MCI’s past financial strategy, giving attention to the types of securities on which it has relied. Why did MCI finance itself in the manner it did? Date Type of security issued Reason why June 1972 Common Stock IPO gives funds and access to public markets and a public presence including press coverage Nov. 1975 Common Stock plus 5-year warrant attached The addition of a warrant is a sweetener for investors and allows MCI to sell at $1 rather than its share price of ⅞ Dec. 1978 $2.64 Convertible cumulative preferred stock Cum. pref stock is A type of preferred stock with a provision that stipulates that if any dividends have been omitted in the past, they must be paid out to preferred shareholders first, before common shareholders can receive dividends.
ABC Corporation Case Ashley White Hudson; Kim Crayton; Brenda Fountain; Latisha Blackmon ETH 376 May 28th, 2012 Juan C. Vargas ABC Corporation Case ABC Corporation is a large publically held corporation that is in the process of being audited by external auditors from the CPA firm, Green & Associates. Issues relating to audit opinions, internal controls, valuation methods, compliance with SOX, GAAS, and GAAP rules and ethical points involving ABC Corporation and Green & Associates will be discussed. ABC Corporation was utilizing the FIFO inventory method for the current year to declare a lower gross profit which reflects a lower net income in order to pay lower taxes and increase their cash flow. FIFO method is used when a company uses old inventory first (First In First Out) so that they can prevent the inventory from being obsolescence and/or be sold at a stable price. By using this method the income statement shows a higher income due to the lower value of the cost of goods sold.
There is $2.5 million sinking fund required which leaves $12.5 million outstanding at maturity. The issues with this method are as follows: Long-term-debt can be burdensome and can stunt or slow growth of the company. The company has to payback what was borrowed plus the interest on the debt. It also puts stockholders and management who are primary holders of stock at risk, because if the company earnings are substantially lower than what was forecasted then the bondholders can virtually gain control of company. The second alternative would be the possibility of issuing new common stock of 3 million shares offered at $17.75 per share.
Since we do not have the data for historical volatility and estimating an average from the graph would not be particularly reliable, we can use the long-term (2+ year) call option prices provided in Exhibit 5 to reverse-engineer the volatility. Call option price Period until expiry Strike price Risk-free rate (approximation) Volatility (reverse-calculated using B-S model) 5.04 2 years, 1 month 18 0.27% 29.4% 1.52 2 years, 1 month 25 0.27% 23.4% 1.02 2 years, 1 month 27 0.27% 22.8% Average volatility 25.2% In order to improve accuracy we have taken an average of the three figures which is 25.2%. This is the annualized volatility for the period of just over 2 years. Since we do not have any other information, this will be our best estimate for the annualized volatility over 5 years. Using Black-Scholes calculator, we then get the call option price Ct = $3.93.
While the current liability dropped from 25.6% in 2003 to 24.3% in 2004, it is apparent that this company has allocated for this as a long-term debt since it rose from 23% of total liabilities in 2003 to 26.4% in 2004. Lucent Technologies equity structure enhanced from a shortage representing a negative in their total liabilities and shareholder’s equity in the year of 2003 when it is compared to the year of 2004. Their equity position would be considered a deficit, but becomes less of an issue as the years pass. Lucent Technologies Case P.3 3. What concerns would investors and creditors have based on only this information?
Since Stark has received the alert from Merrill Lynch she is questioning her recommendation to hold; moreover, Stark must take the effect her recommendation will have on FPL’s stock prices into consideration before altering her recommendation to sell or buy or maintaining her current hold recommendation. FPL has four options for its dividend policy. FPL could keep its current dividend growth rate of 1.6%, slow down its dividend growth rate to 1% a year, freeze its current rate of $2.48 per share, or reduce its current growth rate. Discussion FPL is the largest utility company in Florida and the fourth largest utility company in the United States. FPL was formed in 1925 and grew steadily until 1970 when the increase in fuel costs and construction cost over-runs reduced its profitability.
It is because of the reason that, 17.5 million gallons are being just an expected amount of fuel and in future the perfect hedge cannot be achieved. J&L should accurately estimate the future demand as the demand is decreasing due to the reason that in 2008 there was a recession that affects the fuel prices and it soften the demand.The percentage of the 210 million gallon would be hedged as J&L go for the future contracts with the suppliers at the fixed rate and the percentage they should hedge for the fuel prices should be around 25% it is because of the reason that for the first quarter of the year they should store the inventory for the future demand. This percentage is lower because of the lower demand. Question 2. What are the pros and cons of using NYMEX contracts versus using the risk management products offered by KCNB?