528 words - 3 pages
Miracle Brown
ENG 106
April 8, 2012
Professor Key
Government Debt
Governments get into debt each and every day. There are plenty of things that cause a
government to get into debt. Many governments don’t let the public know about all the debt they
have gotten the community into. Throughout this essay I plan to do a research on government’s
debt and explain the many things and ways that cause them to get into such a bad situation.
Everyone have their own opinions about how the government gets into debt. I feel that
there are plenty of reasons that cause the government to get into the situation. For the past
centuries, many people in America have dug themselves into a
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3656 words - 15 pages
A restructuring of debt constitutes a Troubled Debt Restructuring if the creditor for economic or legal reasons, related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider (FASB ASC 470-60-15-5). That concession either stems from an agreement between the creditor and the debtor or is imposed by law or court (FASB ASC 470-60-15-6). In a Troubled Debt Restructuring, the creditor’s objective is to maximize recovery of its investment by granting relief to the debtor. The creditor expects to obtain more cash or other value from the debtor, or to increase the probability of receipt by granting the concession, rather than by not
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2231 words - 9 pages
AGRICULTURAL DEBT WAIVER AND DEBT RELIEF SCHEME, 2008
A report submitted
In partial fulfilment for requirements of the course
Public Finance
Instructor: Prof. Prem Pangotra
Prof. R. H. Dholakia
Academic Associate: Bangkim Kshetrimayum
Submitted by
Harish Mahale
Kamala Kalavacharla
Kashif Mohammad
Mayank Kansal
Rakesh Gehlot
Rishabh Bhansali
Tauseef Ahmad Khan
22ndAugust 2013
INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD
AGRICULTURAL DEBT WAIVER AND DEBT RELIEF SCHEME, 2008
Introduction
Poor farmers in India face highly volatile incomes. In such cases, the bank loans serve dual purpose of enabling productive investment and providing insurance against highly volatile
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1353 words - 6 pages
Government Debt
The history shows that the United States, from its beginning 1790 to present, has been free of a national debt only 2 years, 1834 and 1835.the government debt has grown from 75.5 millions in 1790 to 13.5 trillion 2010. The government debt growth is extremely alarming due to its rapid and huge growth over a year. The US national debt clock shows that the national debt growth rate is about $50000/1seconds. Every day we watch news or we read news about government debt, the news reporter, politics, and economist talk how bad the national debt hurt the economic and how it fact the people, however; for a better understanding of government debt and the significance of those
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554 words - 3 pages
The National Debt
For the past centuries, the american people dug themselves into a big
hole which is the National Debt. In this paper I will discuss the history of
the national debt, effects on the debt/deficit, wais to reduce it and control
the deficit. the national debt has increased every year from 1945 to 1995. The
biggest increase of the debt was from the years 1985 to 1995 whwn it went up
about three trillion dollars. Right after the Civil War the debt held at three
billion dollars. In 1900, this debt of three million dollars had decreased to
one million dollars. In 1919, at the end of the World War 1, the debt
skyrocketed to 25.5 billion. When the
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817 words - 4 pages
DEBT POLICY AT UST Inc.
B.B.Chakrabarti IIMC
THE ISSUE
UST planning a major change in capital structure via a debt-financed stock repurchase program Dec 98 UST Board approved a plan to borrow $1 billion over 5 years
UST - BACKGROUND
175 year old company Dominant producer of moist smokeless tobacco Uninterrupted cash dividends since 1912 One of the most profitable American companies 5-year ROCE of 92.1% Increasing EPS and Share price P/E ratio = 13.8
SMOKELESS TOBACCO MARKET (1998)
$2 bn in retail revenue 5 mn consumers of moist smokeless
tobacco 7 mn consumers of chewing tobacco Moist smokeless tobacco fastest growing segment at 3.7% annual growth
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846 words - 4 pages
Debt and Equity Instruments
Understanding the different debt and equity instruments gives managers the ability to make more accurate decisions that will help develop greater business prospects and opportunities. The cost of capital is what companies use to decide how they can increase money through borrowing or investing in stock. It is the required return that is crucial in making a budgeting project worth doing. Both the cost of debt and the cost of equity are what comprise the cost of capital. Costs are related to preferred stocks, common stocks and financial capital. These all play an important factor and can decide the success or failure of the company. These costs supply
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European debt crisis continue to bring influences to the global economy during the week. , During the week, “Standarad and Poor’s (S&P) downgraded Italy’s credit rating from a A+/A-1+ to A/A-1” beacuse of “Italy’s weakening economic growth prospects” and “a view that its governing coalition would limit the government’s ability to respond decisively.” Such a downgrade affects the Australian Forex falling “to a five-week low” and economists expected that currency market is “driven by further news on eurozone debt woes.” Moreover, the three top US banks, Bank of America, Wells Fargo and Citigroup was downgraded by Moody’s because of “the US givernment less willing than before to rescue them if
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688 words - 3 pages
U.S. Debt Increases
Members of the U.S. Senate want to vote on a proposed amendment that would raise the national debt limit to $14.29 trillion that would be a $1.9 trillion dollar increase from what it currently is now. This measure has both pros and cons that will come into affect if it members of the U.S. Senate pass it. No studies have been conducted to see what the outcome will be or how it will affect our economy in the long run. Due to this fact lawmakers should wait and study this issue thoroughly before making a decision. They need to have all the facts available so that the Senate can make an informed decision on the matter.
The White house is stressing this issue because
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How People Fall Into Debt
Unfortunately in today’s demanding society, many find themselves racking up thousands of dollars of debt. There are many different reasons as to why people wind up in this mentally and finically stressful position. While some people are just fiscally irresponsible and lack personal discipline; others that are much more responsible aren’t immune to debt, they can be hit with an unexpected medical bill or job loss. Living outside of ones pay check and unexpected medical incidents are some of the more common way people fall into debt.
Credit cards are attractive for many people because they don’t have to physically carry money with them; but they are also dangerous
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3712 words - 15 pages
December 10, 2012
The European Sovereign-debt Crisis
Throughout history, debt has been an issue and a concern for many countries around the world. Nations borrowing money, unnecessarily spending, corruption, inability to pay back loans and a variety of other factors have contributed to the devastating and lasting effects of monetary absolution. In recent years, some of the most significant and devastating economic occurrences that have taken place were released to the general public. One that has received a great deal of attention is known as the European Sovereign- debt Crisis or the Euro zone crisis. The European Sovereign Debt crisis is an ongoing financial crisis that has made it
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The world's major economies are drowning in debt--Europe, the U.S., Japan, China. We all know the U.S. has tried to save its drowning economy by bailing out the parasite which is dragging it to Davy Jones Locker--the banking/financial sector-- and by borrowing and squandering $6 trillion in new Federal debt and buying toxic debt with $2 trillion whisked into existance on the Federal Reserve's balance sheet.
It has failed, of course, and the economy is once again slipping beneath the waves while Ben Bernanke and the politico lackeys join in a Keynesian-monetary cargo-cult chant: Humba-humba, bunga-bunga. Their hubris doesn't allow them to confess their magic has failed, and rather than let
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Title Exploring Strategies for Avoiding and Managing Debt
Signpost A, Part 1: Learning Check
When does it make sense to use a credit card?
You can use credit any time as long as you plan to pay off the card at the end of the month.
Don't use a credit card unless you need it to gain a benefit or because the transaction requires it.
Just be careful not to over-use your credit card and you'll be fine.
Really, just never use a credit card. They're dangerous.
How many credit cards should I have?
Do not get a credit card under any circumstances!
Get as many as you need in order to gain all of the benefits possible.
Make sure you have a few cards with
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Is there any way that you could have solid abs in just six days? It is hard to say for sure, but you can have a solid budget in just a few months. One of the challenges to getting out of debt habit is effective budgeting. When you want a solid abs you cannot just go exercise once and a while, you have to effectively workout every day. There is no difference in escaping from the stack of endless bills; you need to effective utilize your finances every day. You can survive without knowing how to budget if you manage to keep more money coming in than flowing out or having credit cards to cover the gap, but this will not last forever. People often resort to budgeting after they have already
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931 words - 4 pages
Confidence in the external environment in which businesses operate can have a significant effect on their success. To what extent do you think the UK’s potential exit from the EU is the main factor delaying business’ long term investment decisions? Justify your answers with reference to external factors and/or businesses that you know. (40 marks)
The external environment is a factor that businesses need to consider before making long term investment decisions. They need to consider the current and future economic state, competitor’s decisions and legal and political issues that may concern them e.g. a change in the minimum wage would affect businesses who have a large workforce. There are
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Critically examine the view that the debt crisis is a result of inappropriate development policies. (40 marks)
In 2008, the total external debt for the world’s developing countries was US$3.7 trillion, and US$163 billion for the worlds least developed countries For the developing world as a whole, in 1991, the total external debt was $1.362 trillion, which was 126.5%of its total exports of goods and services in that year, and the ratio of debt servicing to the gross domestic product of the developing world reached 32.4%. For some LEDCs, debt stood at 98% (Congo) and 112% (Nicaragua) of their GDP in 1980. Consequently, we have the situation whereby the last ten years
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1471 words - 6 pages
Over view of the digestive system
Two groups of organs compose the digestive system:
-The gastrointestinal tract and the acessory igestive organbs
the gi tract is a continous tube that extends form the mouth to the anus,
the gi tract contains food from the mouth to the anus
the gi tract contains food from the time it is eaten until it is digested and abosrbed or eliminated from the body
orangs in this tract: mouth pharynx asophogus stomach small intestine and large intestine.
Acessory digestive system: the teeth tongue, salivary glands, liver, gallbladder and pancreas
teeth: brerak down food
tongue: chewing and swallowing
6 basic processes of the digestive systemL
ingestiuon
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932 words - 4 pages
TASK 1: Describe how the Debt Collection Industry has evolved and evaluate the impact this sector has on the UK economy.
The debt collection industry has evolved dramatically and it has a strong impact on the UK’s economy.
One of the earliest examples of credit goes back to 1572 when moneylenders and pawnbrokers provided ‘survival’ credit however it was not until the late 19th century that instalment credit became available and this was the start of the debt collection industry. Initially the debt collection industry was local based field collectors who would make personal visits to overdue customers. ‘In the early days of merchandising, the proprietor was his own credit manager. His
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543 words - 3 pages
As I have stated before below is our protocols for transacting our business on the Euroclear Screen with instruments that are Beneficially owned with a Registered/Titled Owner:-
Protocols:-
1) The Securities can be Corporately Invoiced with Copy of Euroclear Title Page
2) The Securities are screen-able on EUROCLEAR
3) The Securities are on balance sheet (Cashed Backed) payable with the full faith and credit of the issuing bank.
4) The Securities are Beneficially Owned /Titled (Registered Owner)
5) The Securities are issued by one or more acceptable Western European Money Centre Banks rated A/ AA or better by Standard and Poors, Normal Exclusions.
6) The
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656 words - 3 pages
Actual 1981 30% debt to total capital 50% debt to total capital 70% debt to total capital
Return on Equity 33.8% 51.5% 69.2% 110.5%
Time interest earned 415.13x 17.49x 10.5x 7.5x
Book value / share $9.5 $6.5 $4.9 $3.2
Earnings available to security holders $499.6 m $504.8 m $521.7 $538.5 m
Net profit margin 0.12 0.11 0.11 0.10
Price / earnings ratio 9.43x - - -
Stock price $30 $31.40 $32.16 $33
Taxes $455.2 m $417.4 m $400.5 m $383.7 m
Earnings / share $3.18 $3.33 $3.41 $3.49
Dividend / share $1.90 $2 $2.04 %2.101. Return on Equity (ROE):
As we noticed that the ROE increased in these different capital structures and reached the highest ratio in 70% debt (110.5%). As the debt
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display potential for corporate restructuring. A typical trait in these companies is that they possess unused debt capacity relative to their risk. Her strategy is to first identify these companies’ possible less than optimal capital structure, and if there happens to be any inefficient structures, she would invest heavily in the shares of these companies before persuading the management and directors into restructuring.
Wm. Wrigley Jr. Company is one such company that happens to be the current target of interest because Dobrynin believes this company was not fully maximizing its debt capacity and that there is a high possibility for opportunities in recapitalization through leveraging. Hence
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1184 words - 5 pages
-to-own purchase" or "lease purchase") is a lease
combined with an option to purchase the property within a specified period,
usually 3 years or less, at an agreed-upon price. The borrower pays an option fee,
1% to 5% of the price, which is credited to the purchase price. The borrower pays rent,
and an additional rent premium that is also credited to the purchase price.
If the purchase option is not exercised, the buyer loses both the
option fee and the rent premium.
2) Timberland Power & Light - Long Term Bonds
$900 m long term debt = 60%
$75 m
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585 words - 3 pages
Impact of recapitalization
With the addition of the new debt, Wrigley’s share price should quickly and fully reflect the changes in investors’ perceptions stemming from the repurchase once the company publicly discloses its intentions. Those perceptions should adjust in several dimensions
• Present value of new debt tax shields created by the recapitalization:
• Signaling effects: Generally, recapitalizations may signal to public investors the (better informed) expectations of insiders. Revelations of how the insiders view the future may cause public shareholders to revise their expectations about the firm’s future.
• Incentive effects: A large increase in
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per STT…………………………………………………………...………………….…….6 My stance about the STT theory…………………………………………………………………………………..7 Major results and evidences……………………………………………………………………………………….8 Correlations between determinants of capital structure and debt ratios in listed companies……………………11 Conclusion…………………………………………………………...……………………………………….….12 References………………………………………………………………………………………………………..13
Page |3
Research Paper - The Optimal Capital Structure According to the Static Trade- Off Theory Introduction of the Optimal Capital Structure According to the Static Trade- Off Theory The static trade-off theory, focuses on the benefits and costs of issuing debt, predicts that an optimal target financial
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collection days show that AHP can generate cash quickly, so it can maintain current high 14.1% in 1978 to 8.8% in 1981 (Exhibit 1) shows that it faces future risk of losing market shares in all its business lines if it does not foresee competition and A ns. 2: High ROE (30.3). High quick ratio (42.68). Low debt-to-equity ratio (0.09). Low debt-to-asset ratio (0.01) Degree of Financial Leverage EBIT Interest Preferred stock dividend DFL 30% Debt 922.2 52.7 0.4 1.062 50% Debt 922.2 87.8 0.4 1.106 70% Debt 922.2 122.9 0.4 1.155 t has:
The above table shows that if AHP increases debt ratio, it will face a financial risk of increased debt-to-equity and debt-to-asset ratios resulting into
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2756 words - 12 pages
undervalued at discount rates below 11.17%.
WHAT IS THE WACC?
A firm derives its assets by either raising debt or equity or both. There are costs associated with raising capital and WACC is an average figure used to indicate the cost of financing a company’s asset base. More formally, the weighted average cost of capital (WACC) is the rate that a company is expected to pay to debt holders and shareholders to finance its assets. Companies raise money from a number of sources so the WACC is the minimum return that a company must earn on existing asset base to satisfy its creditors, owners, and other providers of capital.
WACC is calculated taking into account the relative weights of each
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1. A combination of business risk and financial risk shows the risk of an organization’s futurereturn on equity. Business risk is related to make a firm’s operation without any debt, whereasfinancial risk requires that the firm’s common stockholders make a decision to finance it withdebt. a) American Home Products has been operating on four main lines of business that are lessuncertainty about product demand; for example, one of its business lines is food productsbecause whenever people buy foods. It means that AHP’s business risk is low. As mentionedabove, if a firm does its operation activities regularly without leverage, it means that its businessrisk is not significant high. Thus, ratio
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Capital structure refers to the proportion of financing from debt and from equity capital (D/E ratio). An efficient mixture of capital reduces the price of capital. Lowering the cost of capital increases net economic returns, which, ultimately, increases firm value. There are a number of theories that explain capital structure, namely, M&M, Static Trade-off Theory and the Pecking Order Theory.M&M theory assumes that the market is in a perfect capital market status as no transaction or bankruptcy costs, asymmetric information flow, firms and individuals can borrow at the same interest rate, no taxes and investment decisions are not affected by financing decision. All these assumption
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Bed, Bath & Beyond: The Capital Structure Decision
Advanced Corporate Finance
September 15th, 2014
Short introduction:
BBBY was founded in 1971 by Warren Eisenberg and Leonard Feinstein. At first they opened two specialty stores. In 1985 the company opened the first superstore. With some good strategies BBBY differed from its competitors. The main factors were: Good customer experience leading to high store productivity, decentralized store control, high margins and low cost structure.
Question 1
D= Debt Interest rate=4.50%
E= Shareholders equity Corporate tax rate=38.50%
Excess cash
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12%. Kadar ini bagaimanapun, telah merosot dalam dekad yang lalu disebabkan cek hilang bahagian kepada bentuk-bentuk pembayaran elektronik, seperti ATM, kad kredit, kad debit, dan sistem internet pembayaran bil. Deluxe bersaing terutamanya dengan dua syarikat lain, iaitu John Harland dan Clarke American. Dengan percambahan sistem pembayaran alternatif, perniagaan daftar percetakan menghadapi penurunan tahunan sebanyak 1% -3% dalam permintaan cek, satu trend yang penganalisis industri menjangka akan berterusan.
ANALISIS
Analisis WACC
Jalan Pengiraan:
1. Cost of debt after tax
Kd (1-t) = 5.47(1-0.30)
= 3.829
2. EPS = Net income/ common share issue
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Managing Director, Rajat Singh assessed current and future financing requirements for the firm. Deluxe required additional financing for such general corporate purposes as working capital, capital asset purchases, possible acquisitions, repayment of outstanding debts, dividend payments, and repurchasing of the firm’s securities. Deluxe had three debt instrument proposals to meet short-term financing needs. The instruments include:
* Commercial paper: Deluxe maintained a$300 million commercial paper program which carried a A1/P1 credit rating. “The risk of a downgrade of Deluxe’s short-term credit rating is low,” Singh thought. “If for any reason, they were unable to access the
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Case Study: PizzaPalace’s Capital Structure
Made by A. C
a. Provide a brief overview of capital structure effects. Be sure to identify the ways in which capital structure can affect the
weighted average cost of capital and free cash flows.
The capital structure decision change the value of the firm either through the the free cash flow or the cost of capital.
V
=
∑
∞
t=1
FCFt
(1 + WACC)t
With FCF= NOPAT-change in ( NOWC+NFA)
WACC= wd (1-T) rd + wers
An additional debt has an effect on WACC and FCF:
On WACC:
-debt increase the cost of stock rs as the stockholders require a higher return
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Basic equation:
Ways to evaluate the basic equation:
1. Time-series: historic cost of capital
2. Compare with other firms (cross-section)
Example 1 (Time-series)
Firm A had a cost of long-term debt 2 years ago of 8%. Risk-free cost of long-term debt is 4%. Business risk premium is 2%, and financial risk premium is 2%. What is the cost of long-term capital of the firm when the current risk-free cost of long-term debt is 6%?
Example 2 (Cross-section comparison)
Firm B is in the same business and with a financial premium of 4%. The cost of capital of firm B is higher than that of firm A by 2 %.
Definition: Target capital structure refers to the desired optimal mix of
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. Issue 7.5 million additional common stocks at the price of $17.75/share.
During the board meeting, there was no consensus on the mode to secure the funding. While Andrea Winfield and Joseph Winfield thoughts that issuing stock is a better option; Ted Kale, Joseph Tendi, and Naomi Ghonche did not prefer the approach of issuing stock. James Gitanga, the newest addition to the board was apparently in favor of raising long term debt through bonds.
Here is each director’s assessment of financial decision and our response to that:
Andrea Winfield
Andrea thinks that stock issuing has a lower cost. Issuing a bond will result in additional cash outlay of 6.25 million per year as principal
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BACKGROUND
In 1981, AHP had reached sales of more than $4 billion by producing 1,500 marketed brands in 4 different kind of business; prescription drugs, packaged drugs, food products, and housewares and households products. Moreover, AHP is known to be the largest and profitable business in prescription of drugs; however, the company has a sizable market share in antihypertensive, tranquilizers, and oral contraceptives. The company has almost debt- free balance sheet and growing cash reserves (40% of net worth in 1981). AHP was able to gain this huge success in these lines was by marketing expertise.
CULTURE OF THE BUSINESS
AHP's corporate culture distinctive and this culture had
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572 words - 3 pages
The reasons we as Americans buy on credit varies, but without it most of us would
probably never be able to purchase necessities such as a home or automobile. The nation's
economy depends on credit, the promise to pay later for goods and services used today;
but along with consumer credit comes consumer debt. With the rise in telemarketing and
commercializing in America it is no wonder why Americans feel the impulse to buy now,
pay later. The most common form of consumer debt is installment debt, which is when a
consumer borrows the money to purchase an item and agrees to repay the loan in equal
installments over a fixed period of time.
Without installment debt most consumers could
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654 words - 3 pages
Cox Communications, Inc, 1999 (CCI)
Q6: Analyze the solutions proposed in Exhibit 8. What is a FELINE PRIDES security? What are the advantages/disadvantages to firms using this security? Decompose this security into its debt and equity components. What, economically, is a firm doing when it issues FELINE PRIDES?
1) Issuance of debt (bonds/bank):
For:
• Transaction costs effectively 2% less than equity
• Negative effect on CCI’s stock is estimated to be around 1% - 2% (moderately low)
• Doesn’t decrease Cox family’s majority stake and voting rights
Against:
• Investment grade of CCI is likely to be decreased due
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stock of Nike Inc should be added to the North Point Group’s Mutual Fund Portfolio or not.
What is WACC? And why is it important to estimate a firm’s cost of capital?
The weighted average cost of capital (WACC) is the rate (expressed as a percentage, like interest) that accompany is expected to pay to debt holders (cost of debt) and shareholders (cost of equity) to finance its assets. It is the minimum return that a company must earn on existing asset base to satisfy its creditors, owners, and other providers of capital. Companies raise money from a number of sources: common equity, preferred equity, straight debt, convertible debt, exchangeable debt, warrants, and
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lead to a deduction of 2 points, etc. If you do not answer more than 4 subquestions, you will not receive any credit for the assignment
Exercise 1:
Restex maintains a debt-equity ratio of 0.4, and has an equity cost of capital of 10% and a debt cost of capital of 7%. Restex’s corporate tax rate is 40%, and its market capitalization is $250 million.
a. If Restex’s free cash flow is expected to be $25 million in one year, what constant expected future growth rate is consistent with the firm’s current market value?
b. Estimate the value of Restex’s interest tax shield.
Answer:
A)
WACC= 11.410%+0.41.47%1-0.40=8.343%
VL=E+D= 250*1.4=350= FCFWACC-g=250.08343-g
g
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Question 1
Look at the page following the financial statements titled “Selected Financial Data.” Note that fiscal 1985 ends on February 2, 1986, and there is a typographical error in the case. That is, the first column of data is for February 2, 1986 – NOT 1985. Graph Home Depot's performance in the following areas. Provide a brief, 1-3 sentence evaluation of each area.
* Growth in Sales
* Growth in Total Assets
* Change in Net Income
* Growth in Long-term Debt
Answer:
Sales Growth:
Sales nearly doubled each year, indicating significant growth during this time due to the aggressive expansion.
Total Assets Growth:
The amount of assets increased each year from
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1160 words - 5 pages
THE WM. WRIGLEY JR. COMPANY
Team 14
Constantine Brocoum
Courtney Delia
Stephanie Doherty
David Dubois
Radu Oprea
November 19th, 2009
Contents
Objectives 1
Management Summary 2
Item 1 2
Sub 1.1 2
Sub 1.2 2
Conclusion 2
Item 2 2
Sub 2.1 2
Conclusion 2
Item 3 2
Sub 3.1 2
Sub 3.2 2
Conclusion 2
Item 4 2
Item 5 2
Appendices 2
i.
Objectives
This report seeks to answer the following five questions about William Wrigley Jr.:
1. In the abstract, what is Blanka Dobrynin hoping to accomplish through her active-investor strategy?
2. What will be the effects of issuing $3 billion of new debt and using the proceeds either to pay a dividend or to
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same. However, the inputs that are used in the calculation would vary. If a company is evaluating a project within a particular segment/division then the company has to make sure that it uses that division’s cost of debt, equity, etc. in calculating WACC. If Midland is planning for a stock repurchase then the correct WACC to be used is the firm’s WACC.
2) Calculate Midland's corporate WACC.
Answer
From the Exhibit 5 in case, the Midland Energy Resources has the following values ($ in millions)
Equity = 134,114
Debt = 79,508
The firm’s enterprise value is the sum of equity and debt values.
Firm Enterprise Value = Equity
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. Monitoring the average collection period is important for a company's cash flow and its ability to meet its obligations when they come due.
Debt Ratio
This coverage ratio compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt. This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company's ability to carry its total debt.
Debt to Total assets:
Total debt to total assets is a leverage ratio that defines the total amount of debt
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Chapter 14
3. Acort Industries owns assets that will have an 80% probability of having a market value of $50million in one year. There is a 20% chance that the assets will be worth only $20 million. The current risk-free rate is 5%, and Acort’s assets have a cost of capital of 10%.
a. If Acort is unlevered, what is the current market value of its equity?
E {value in one year} = 0.8(50) + 0.2 (20) = 44. E = 44/1.10 = $40m
b. Suppose instead that Acort has debt with a face value of $20 million due in one year. According to MM, what is the value of Acort’s equity in this case?
D = 20/1.05 = 19.048. Therefore, E = 40 – 19.048 = $20.952m
c. What is the expected return of Acort’s equity
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ECONOMIC POLICY
KEVIN BROWN
PSC-142
The national debt is at an astonishing 15 trillion dollars and has rapidly grown since the early 90’s. The national debt grows at a rate of 4 billion dollars a day since 2007 and each citizens share is around $48,000. (Hall, 2011) Even though are national debt is not something that most people worry about in our nation, it is very important to maintain and limit. Our government borrows money from other countries to support our programs, such as social security and welfare and that is causing our debt to raise continuously, our government hit its debt ceiling in the beginning of the summer. The government
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shown in Exhibit A in the appendix.
As the CFO, you, Susan Collyns, can continue the success of California Pizza Kitchen by suggesting the company add debt to its balance sheet. The low interest rates because of the recession make our proposal the most attractive since CPK can issue debt at a low cost. Since the company currently has no debt, a modest increase in debt would not be very risky and it would increase the value of CPK due to decreased taxes. You can take this proposal one step further and use the added debt load to repurchase shares of CPK from investors. This move would please the shareholders since their shares would represent a larger stake in the company due to the
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1061 words - 5 pages
debt/equity of 0.82 shows a good sign of the company that they were not using its debt quite often to produce a larger profit. Although, as the years progressed, the Clarkson Lumber Company’s debt equity ratio began to increase each year until it reached a debt/equity of 2.58 in 1996. Therefore, the company has two dollars of debt for every dollar of equity. If Mr. Clarkson generates more profit through his company, it may result into volatile earnings since the company holds more risk because of too much borrowing. Since the company was short in cash, Mr. Clarkson assumed that by borrowing more and more will resolve the issue. Nevertheless, by having the Clarkson Lumber Company used too
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935 words - 4 pages
CHAPTER 16
STEPHENSON REAL ESTATE RECAPITALIZATION
1. If Stephenson wishes to maximize the overall value of the firm, it should use debt to finance the $45 million purchase. Since interest payments are tax deductible, debt in the firm’s capital structure will decrease the firm’s taxable income, creating a tax shield that will increase the overall value of the firm.
2. Since Stephenson is an all-equity firm with 12 million shares of common stock outstanding, worth $48.50 per share, the market value of the firm is:
Market value of equity = $48.50(12,000,000)
Market value of equity = $582,000,000
So, the market value balance sheet before the land purchase is
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593 words - 3 pages
Scott Equipment Organization Memo
To: Scott Equipment Organization Management Team
From:
Date:
RE: Financing Options
Scott Equipment Organization anticipates current assets to be around $66 million. The income tax rate for Scott Equipment is 40%, which would make the projected tax amount for next year around $26.4 million. The organization has three options available to when implementing their financial policies. The aggressive financial policy has a large amount of short-term debt, moderate policy utilizes a moderate amount of short-term debt, and the conservative option uses a small amount of short-term debt. Each financial policy has their own benefits, but it the best decision is
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673 words - 3 pages
BUSN460 Individual Financial Analysis Project
Student Name:
Instructions:
Go to the CanGo intranet found in the Report Guide tab under Course Home
Use the financial statements from the most recent year to fill in the table below.
You may find some formulae calling for an average, e.g., average inventory, average receivables.
Because we only have the Balance sheet for one year, you can only use the one year number not an average.
Assume interest expense is $0.00
Be careful of the Debt equity ratio. The review covers debt asset ratio as an example of how to calculate ratios and that is different from debt equity ratio,
and that
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