A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital. It also indicates how well a company's management is deploying the shareholders' capital. In other words, the higher the ROE the better. Falling ROE is usually a problem. CAGR: Operating income, % Operating income (EBIT) measures a company's earning power from ongoing operations and it largely used by investor because it excludes the effects of different capital structures and tax rates used in different companies.
A firm’s value depends on the positive net income generated in the past. True False A firm’s value depends on the firm’s ability to generate positive cash flows now and in the future True False When determining the value of a firm, which of the following statements is true? • Inversters are risk neutral. Other things equal they prefer to pay more stocks that are less risky and have uncertain cash flows • Investers love risk. Other things equal they prefer to pay more for stocks that are more risky and have uncertain cash flows.
As a C-corporation the business, not the owner, would be held liable for any financial damages. Any accidents involving employees or customers would be the responsibility of the corporation to settle. Financially speaking incorporating is the best option because as a sole proprietorship the owner is currently paying a much higher tax rate versus the corporate tax rate. With the tax code being different for corporations there is better profit retention and security. The client also mentioned the issue of partnership and the selling of stock in order to expand the company.
Is the real estate subsidiary a good idea? If the managers buy more stock, what is the appropriate price? There are two major concerns which are gaining competitive advantage and determining comparable valuations. Brazos should allow the company to sell the managers some stock of the business to benefit the managers. But the amount that a manager can hold stocks should be limited because the ownership would be split in this way as it is not good for Brazos itself to decrease its ownership.
Individual financial gain determines the price for oligopolies. These firms find non price competition to keep from having to change the price of their products. The output of each product must be maximized to see a true profit which is
3) The sales budget is to estimate the profitability. As we know, sales budget is used to structure the company in a way to maximize profits. With an accurate projection of future sales, the company is actually can save the expenses and protects the company from failing. If the sales projection is overstated, the president has to decide whether to proceed or to have other alternative planning.
c. All firms should behave ethically. Firms, employees and consumers. No one likes doing business with companies that don’t treat employees or consumers ethically. e. Three factors that determine cash flows are sales revenue, operating expenses and necessary investments in operating capital. f. Free cash flows represent the cash that a company is able to produce after laying out the money required to maintain or grow its asset base.
If the IRR is less than the WACC, the project should be rejected, as it impoverishes the firm’s owners. If the IRR equals the WACC, it earns only normal profits (i.e., the owners’ opportunity costs) and accepting it is a matter of indifference. In this care the project’s IRR is 18.031 > 11.88%, therefore the IRR rule tells us the same as the NPV rule: this project will enrich the firm’s owners. We note in passing that in more advanced courses in finance you would learn about projects for which this rule cannot be used. Broadly speaking, they are projects whose cash flows changes sign more than once—e.g., from negative to positive to negative again.
The value to the separate transitions would be higher than a combined one. Being the value of the disk drive business diluted in the Veritas stock value, a separation based deal would trigger a valuation of the Veritas business close to its stock price value, plus a higher price for the disk drive business. Finally Silver Lake Partners’ aims to acquire the disk drive operations and probably are not interested in the Veritas stock, that is a very close exchange of money for stock. Transaction Winners and Losers: Main winners would be Seagate shareholders. Will avoid taxes on the Veritas stock swap and acquire a more liquid asset.
A country can be a capital (or labor)-abundant nations and labor (or capital)-scarce nations which consider their comparative advantage in technologies, input productivity, and wages of labor. Free trade can bring a lot of advantage to us; however, it does not apply in real world. Tariff and non-tariff are the tools that use to trade protection or prevent the economy from undergoing adjustment during economic stagnation. Although tariff and other restriction can concede the economic losses and using resource with less efficiency, but protectionism argue that non-economic benefit such as a national security can more than offset those economic losses. Normally trade protection is use to secure domestic industry and labor union’s economy welfare.