FIN 401 Study Guide - Final Guide: Capital Surplus, C Max, Futures Contract

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roj

4 Oct 2017

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**for tvm = n periods; pmt (coupon rate x fv); p/y & c/y usage = n x freq & pmt/freq. #1) initial cost of fixed (already at pv) assets (-) #2) pv of after tax cash flow (+) #6) pv of nwc recovery, add all up and get npv, selling on credit (cid:883)(cid:4666)(cid:883)+(cid:1870)(cid:4667)(cid:3041) (cid:883)+(cid:1870) (cid:1845)(cid:3041)(cid:1856)(cid:1846)(cid:3030) (cid:1856)+(cid:1870) C= total capital investment d = cca rate. Tc = corporate tax rate r = discount rate. Sn = salvage value in year n. N = number of period in the project. Example 1: question: your firm is considering buying a new machine for ,000. It has a useful life of 4 years and an estimated salvage value of ,000. The machine falls in asset class 8 with a cca rate of 20%. Incremental revenues are (cid:1848)(cid:1829)(cid:1829)(cid:1846)(cid:1845)= (cid:1829)(cid:1856)(cid:1846)(cid:1856)+(cid:1870)(cid:883)+(cid:882). 5(cid:1870) (cid:1829)(cid:1829) (cid:1846) (cid:1845) (cid:1857)(cid:1864)(cid:1856) = (cid:1830) (cid:1846) expected to be ,000 per year and incremental expenses are expected to be ,000.

Related Questions

Narratives on the following: Based on the information in the attached pictures.

at least one ratio from each category (liquidity, asset management, debt management, profitability, and market value)

a comparison of the results of the two fiscal years for the ratios chosen (i.e., increase, decrease, ideas as to why this might have occurred)

a comparison to the industry average for the ratios chosen (i.e., how the company compares to the industry and what this means for the company)

What risk is the company facing? Is this true for the entire industry? How can the company mitigate this risk? What is the industry Beta and the company's Beta?

recommendations for individuals who may be considering investing in the chosen company

Given the model of valuation is the company priced fairly? What recommendations would you make to increase the value of the company (be thorough make specific recommendations tied back to the company's stated financial goals).

Assume that you were given an early inheritance of $50,000 and on January 2, 2015, you used the money to invest in your chosen company's stock. You held the company's stock during 2015, selling all of your shares on December 31, 2015. Answer the following:

How many shares did you purchase on January 2, 2015?

What was the initial purchase price per share of stock?

Did you earn any dividends during 2015? Cash or stock? What was the value of your dividends? Would you have received a stock-split or been part of a repurchase program?

At what price per share did you sell your stock at on December 31, 2015?

Did you make any money on your investment? If so, how much? If not, how much did you lose?

Answer based on this info:

	All Figures in 000's
Particulars	2014	2015	2016
Current Asset		2764538	3133214
Current Liability		1049014	1187659
Cash & Cash Equivalents		441850	600646
Investment others		268720	310072
Investments fixed maturity		1304962	1510538
Receivables		189869	175210
Total Assets	5998978	6872175	8150175
Shareholders Equity	1527368	1884359	2251406
Total debt		2190869	2688758
Sales		3074531	3275656
Operating profit		663024	866814
Net profit		356741	489001
Price on the last day ($)		330.62	345.05
EPS ($ per share)		18.21	24.95

Particulars	Formula	2015	2016
Current Ratio	current assets/current liabilities	2.64	2.64
Quick Ratio	(cash + investments + receivables)/curretn liabilities	2.10	2.19
Operating Margin	(Operating Profit/Sales)*100	21.57%	26.46%
Net Profit Margin	(Net Profit/Sales)*100	11.60%	14.93%
Return on Total assets	(Net profit/Average assets)*100	5.54%	6.51%
Return on common equity	(Net profit/Average shareholders equity)*100	20.91%	23.65%
Return on invested capital	(Net income -dividends)/(Debt+quity)	8.27%	7.92%
Price/Earnings	Price/EPS	18.16	13.83
Market Capitalisation	Price * Bumber of shares outstanding	6475732602	6761637756
Share outstanding	NA	19586633	19596110
Dividend per share ($)	NA	1	5
Dividend Yield	(Dividend/Price)*100	0.30%	1.45%

fuchsiamule181

Please help me figure this out and show me the excel forumla i should use

You are given the following information about a company. Their tax rate is 34%. The firm is in need of $5 million dollars in external funds. Your bond advisor suggests that new bond issues can be lower than the current yield to maturity by 2.0% . You are not sure he is correct. Should you issue the new debt to raise money?

use RATE, specifically, '=rate(nper, pnt, pv, fv). FV is the par of 1000. PV is the current price. PMT is the coupon rate x 1000/2, and nper is the maturity x 2. You should get a cost of debt of 5.24% before tax.

Existing capital structure: Debt: 5,000 Eight percent (8%) coupon bonds outstanding. The par value is $1000 and they mature in ten years. They are currently selling for $1250 and make semiannual payments. Equity: 50,000 shares outstanding. The common stock is currently selling for $72 per share. The beta for the company is 1.15. Preferred Stock: 10,000 shares of 2% preferred stock with a par value of $100, and is currently selling for $65 per share. Market Information: The risk of the market is 6% and the risk-free rate is 2%. The industry debt-equity ratio is 33%. The flotation rate for new debt is 3% and for new equity it is 5%.

1 New cost of capital if add 5M in new bonds This assumes we sell enough bonds to realize 5M. Since the price will be net of flotation we need to sell them at 1000 but net a bit less.

2 What if they finance the 5M with all equity? What would the capital structure and WACC look like?

3 What if they add 5M in financing split among debt and equity in proportions equal to the current capital structure. What is the WACC?

beigekoala314

Electronic Timing, Inc. (ETI) is a small company founded 15 years ago by electronic engineers Tom Miller and Jessica Kerr. ETI manufactures integrated circuits to capitalize on the complex mixed signal design technology and has recently entered the market for frequency timing generators, or silicon timing devices, which provide the timing signal or ï¿½clocksï¿½ necessary synchronize electronic systems. Its clock products originally were used in PC video graphics applications, but the market subsequently expanded to include motherboards, PC peripherals devices, and other digital consumer electronics, such as digital television boxes and game consoles. ETI also designs and markets custom application-specific integrated circuits (ASICs) for industrial customers. The ASICï¿½s design combines analog and digital, or mixed signal, technology. In addition to Ton and Jessica, Nolan Pittman, who provided capital for the company, is the third primary owner. Each owns 25 percent of the one million shares outstanding. The company has several other individuals, including current employees, who own the remaining shares. Recently, the company designed a new computer motherboard, The Companyï¿½s design is both more efficient and less expensive to manufacture, and the ETI design is expected to become standard in many personal computers. After investigating the possibility of manufacturing the new motherboard, ETI determined that the cost involved in building a new plant would be prohibitive. The owners also decided that they were unwilling to bring in another large outside owner. Instead, ETI sold the design to an outside firm. The sale of the motherboard design was completed for an after-tax payment of $30 million.

Please answer all 6 questions:

1. Tom believes the company should use the extra cash to pay a special one-time dividend. How will this proposal affect the stock price and company value?

2.Jessica believes that the company should use the extra cash to pay off debt and upgrade and expand its existing manufacturing capability. How would Jessica's proposal affect the company?

3) Nolan is in favor of a share repurchase. He argues that a repurchase will increase the company's P/E ratio, return on assets, and return on equity. How will a share repurchase affect the value of the company?

4. Another company option discussed by Tom, Jessica, and Nolan would be to begin a regular dividend payment to shareholders. How would you evaluate this proposal?

5. One way to value a share of stock is the dividend growth, or growth perpetuity, model. Consider the following: The dividend payout ratio is one minus b, where b is the retention or plowback ratio. So the dividend next year will be earning next year, E1, times one minus the retention ratio. The most commonly used equation to calculate the sustainable growth is the return on equity times the retention ratio. Substituting these relationships into the dividend growth model, we can get the equation to calculate the price of a share today. Explain what are the implications of this result in terms of whether the company should pay a dividend or upgrade and expand it manufacturing capability?

6.Does the question of whether the company should pay a dividend depend on whether the company is organized as a corporation or an LLC?

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FIN 401 Study Guide - Final Guide: Capital Surplus, C Max, Futures Contract

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