Hello, I am having trouble with m finance homework. I have listened to all of he online lectures and I am still not sure what to do. Below I have attchaed my homework asssignment, hoping you could help me with some of it. Thanks in advance!
1. (6 points possible) The value of a firm equals current (present) value of expected (future) cash flows based on the return demanded by investors which is dependent on the risk associated with the firm. Give some firm factors/considerations that impact net cash flows and some investor factors/considerations that impact rate of return. 2. (6 points possible) The Chief Financial Officerâs (CFO) key subordinates are the Treasurer and the Controller. Compare and contrast their roles. 3. (6 points possible) Define the âagency relationshipâ and the âagency problemâ. Give some possible mechanisms used by large corporations to motivate managers to act in the shareholdersâ best interest. 4. (6 points possible) Identify three major forms of business organization in the United States and give two advantages and two disadvantages of each. 5. (6 points possible) Discuss some potential problems associated with financial statement analysis. 6. (6 points possible) Explain the DuPont Identity as it relates to Volume, Margin and Leverage and Shareholder Return. 7. (6 points possible) Explain the difference between net income, or accounting profit and net cash flow. Why do these numbers generally differ? 8. (9 points possible) Billingsworth Company had earnings per share of $4 last year and it paid a $2 dividend. Total retained earnings increased by $12 million during the year, and the book value per share at year-end was $40. Billingsworth has no preferred stock, and no new common stock was issued during the year. If the companyâs year-end debt (which equals its total liabilities) was $120 million, what was its year-end debt/assets ratio? 9. (9 points possible) Complete the balance sheet and sales information in the table that follows for Iceberg Industries using the following financial data: Debt ratio: 50% Quick ratio: .80x Total assets turnover: 1.5x Days sales outstanding: 36.0 days Gross profit margin on sales: (Sales â Cost of goods sold)/Sales = 25% Inventory turnover ratio: 5.0x Balance Sheet: Cash ________________ Accounts payable _______________ Account receivable ________________ Long-term debt $60,000 Inventories ________________ Common stock ______________ Fixed Assets ________________ Retained earnings $97,500 Total Assets $300,000 Total liabilities and equity ______________ Sales ________________ Cost of goods sold ___
Hello, I am having trouble with m finance homework. I have listened to all of he online lectures and I am still not sure what to do. Below I have attchaed my homework asssignment, hoping you could help me with some of it. Thanks in advance!
1. (6 points possible) The value of a firm equals current (present) value of expected (future) cash flows based on the return demanded by investors which is dependent on the risk associated with the firm. Give some firm factors/considerations that impact net cash flows and some investor factors/considerations that impact rate of return. 2. (6 points possible) The Chief Financial Officerâs (CFO) key subordinates are the Treasurer and the Controller. Compare and contrast their roles. 3. (6 points possible) Define the âagency relationshipâ and the âagency problemâ. Give some possible mechanisms used by large corporations to motivate managers to act in the shareholdersâ best interest. 4. (6 points possible) Identify three major forms of business organization in the United States and give two advantages and two disadvantages of each. 5. (6 points possible) Discuss some potential problems associated with financial statement analysis. 6. (6 points possible) Explain the DuPont Identity as it relates to Volume, Margin and Leverage and Shareholder Return. 7. (6 points possible) Explain the difference between net income, or accounting profit and net cash flow. Why do these numbers generally differ? 8. (9 points possible) Billingsworth Company had earnings per share of $4 last year and it paid a $2 dividend. Total retained earnings increased by $12 million during the year, and the book value per share at year-end was $40. Billingsworth has no preferred stock, and no new common stock was issued during the year. If the companyâs year-end debt (which equals its total liabilities) was $120 million, what was its year-end debt/assets ratio? 9. (9 points possible) Complete the balance sheet and sales information in the table that follows for Iceberg Industries using the following financial data: Debt ratio: 50% Quick ratio: .80x Total assets turnover: 1.5x Days sales outstanding: 36.0 days Gross profit margin on sales: (Sales â Cost of goods sold)/Sales = 25% Inventory turnover ratio: 5.0x Balance Sheet: Cash ________________ Accounts payable _______________ Account receivable ________________ Long-term debt $60,000 Inventories ________________ Common stock ______________ Fixed Assets ________________ Retained earnings $97,500 Total Assets $300,000 Total liabilities and equity ______________ Sales ________________ Cost of goods sold ___
Related questions
Intermediate Financial Management 11th Edition
Chapter 15: Capital Structure Decisions Part 1 Mini Case
Assume you have just been hired as a business manager of PizzaPalace, a regional pizze restaurant chain. The company EBIT was $50 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms' owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm's investment banker the following estimated costs of debt for the firm at different capital structures:
| PERCENT FINANCED WITH DEBT, Wd | rd |
|---|---|
| 0% | - |
| 20 | 8.0% |
| 30 | 8.5 |
| 40 | 10.0 |
| 50 | 12.0 |
If the company were to recapitalize, then debt would be issued and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corprate tax bracket, its beta is 1.0, the risk free rate is 6%, and the market risk premium is 6%.
Please answer All Parts:
Part A: Provide a brief overview of capital structure effects. Be sure to identify the ways in which capital structure can affect the WACC and free cash flows.
Part B: 1) What is business risk? What factors influence a firm's business risk? 2) What is operating leverage, and how does it affect a firm's business risk? Show the operating breakeven point if a company has fixed costs of $200, a sales price of $15, and variable costs of $10.
Part C: Now, to develop an example that can be presented to PizzaPalace's management to illustrate the effects of financial leverage, consider two hypothetical firms: Firm U, which uses no debt financing, and Firm L, which uses $10,000 of 12% debt. Both firms have $20,000 in assets, a 40% tax rate, and an expected EBIT of $3,000. 1) Construct partial income statements, which start with EBIT, for the two firms. 2) Now calculate ROE for both firms. 3) What does this example illustrate about the impact of financial leverage on ROE?
Part D: Explain the difference between financial risk and business risk.
Part E: What happens to ROE for Firms U and L if EBIT falls to $2,000? What does this imply about the impact of leverage on risk and return?
Part F: What does capital structure theory attempt to do? What lessons can be learned from capital structure theory? Be sure to address the MM models.
Part G: What does the empirical evidence say about capital structure theory? What are the implications for managers?
Part H: With the preceding points in mind, now consider the optimal capital structure for PizzaPalace. 1) For each capital structure under consideration, calculate the levered beta, the cost of equity, and the WACC. 2) Now calculate the corporate value for each capital structure.
Part I: Describe the recapitalization process and apply it to PizzaPalace. Calculate the resulting value of the debt that will be issued, the resulting market value of equity, the price per share, the number of shares repurchased, and the remaining shares. Considering only the capital structures under analysis, what is PizzaPalace's optimal capital structure?
