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ENT 526 Study Guide - Final Guide: Virtual Team, Retirement Planning, Trait Theory

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redmammoth987
3 Mar 2016
School
Ryerson University
Department
Entrepreneurship and Strategy
Course
ENT 526
Professor
Sean Wise

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Document Summary

Bootstrapping: no external investment, how much the company is worth the day after the deal. Example (100% on the exam: ask for ,000 for 50, postmv = ,000 + 250,000 = ,000, premv = ,000. Use: how they"ll spend it, what is the result o o. Bob and barb each own 50% of a company. Go to dave for k for 25% Each own 37. 5: dave"s investment is worth k. Go to carl for m, for 50% 100-62. 5 = 37. 5/ 2 = 18. 75 (bob/barb: by bringing in more investors, they own less % but more value. First date questions: business model, talent triangle, scalability, elasticity of demands, halo effect. How did you come up with this. Key founder dependency: what happens if you get hit by a car, how much does the company depend on you, what stops me from doing it myself (competitive advantage) Exam q: list what questions investors might ask and why.

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Related Questions

The goal of the firm is to ____ because _____. Answer maximize shareholders' wealth; it considers all risks invest funds in real estate; the return is longer maximize shareholders' profit; it is a short term outlook closely matching management goals Mike is paying $8,000 a year on his mortgage at 6% nominal annual interest. He has 15 more years to make payments. He wants to sell his house today. The lowest [minimum] price he can sell the house without losing any money on the house would be about ___. Answer $120,000 $ 50,000 $77,698 $ 186,208 A firm's net income before tax, EBT [NIBT] (on the income statement) is affected by _____. Answer taxes interest dividends Common Stock as listed on the Balance Sheet could include which of the following? Answer A) retained earnings B) additional paid in capital over par value C) preferred capital Both A) and B) If an asset is sold for ___ than its basis, the tax effect would be ____. Answer A) more; capital gain and depreciation recapture B) less; depreciation recapture C) more; capital loss Both A) and B) The main reason for a firm to have assets is to _______. Answer generate revenue match the liabilities and equity both of the above be able to borrow money and pay its debts none of the above The only risk you would NOT have in loaning money to the United States Government (Uncle Sugar) is _____ risk. Answer liquidity maturity default A(n) ____ shows _____. Answer balance sheet; sources and uses of funds income statement; net income as of a specific date cash flow statement; how well the firm is doing relative to its competition You can compare dollars _____ because ______. Answer computed using equations; any math is always correct at any point in time; time is never a factor if they are at nominal value; that is when decisions are made only at the same point in time; dollars can be invested to earn interest There ___ a tax benefit to the company with paying preferred dividends because _______. Answer is; investors can write them off is not; investors declare them as income is; the company can use the payments as an expense is not; the company cannot use the payments as an expense XYZ issued a 6% coupon, $1,000 par, 30 year to maturity bond. It is now 6 years to maturity. What is the price of the bond if the yield to maturity [market interest rate] is 10%? Answer $1,000 $659.46 $825.79 $705.33 The valuation process can be described as ______. Answer calculating the present value of an expected future cash flow using the investor's required rate of return as the discount rate calculating the future value of an expected future cash flow using the investor's required rate of return as the discount rate amortizing the value of the asset over its holding period The ______ is the minimum required rate of return a firm must earn on its investments. Answer net present value opportunity cost of capital or weighted average cost of capital. internal rate of return gross profit margin The value of an asset is the _____ dollar price someone is willing to pay for it. Answer usual maximum minimum Companies use ____ in capital budgeting project analysis because ________. Answer accounting profit; that is the total net income after tax cash flow; that is what the owners would receive from the project and reinvest accounting profit; that is what the owners would receive from the project and reinvest after tax cash flow; that is the result of prudent accounting When borrowing money, you want to know the ____ interest rate because ____. Answer nominal; it is the easiest to find. effective; it is the true cost of borrowing risk free; that is what the government pays Fed funds; that is what you would pay the bank Cash available to pay out to the investors after the firm pays for new investments or additions to working capital is _____. Answer a statement of cash flows operating after tax cash flow free cash flow net income An organization that raises money from investors and provides financing for individuals and businesses is a ___. Answer factor federal government regulatory unit state government taxing authority financial intermediary Negatives/cons of the Net Present Value (NPV) technique include: Answer least conservative reinvestment assumption multiple rates of return for non-conventional cash flows all of the above none of the above A fixed exchange rate means a country _____. Answer can only use gold coins as money is limited in the amount of paper money it can print can print money as the economy demands Your company is considering an investment with the following expected cash flows: Initial Investment = $407,596 Operating Cash Flows = $73,428 per year Terminal Cash Flow = $11,872. The company's WACC is 11% for similar risk projects. The proposed project would have an expected life of 9 years. Your boss asks you to do the analysis. You would tell your boss this proposed project ___ because ____. Answer is acceptable; NPV is about $3,620 is acceptable; NPV is zero should be rejected; NPV is about -$5,660 [negative $5,660]. should be rejected; NPV is zero All ratios are ___ and a reason to analyze ratios is ____. Answer good; to continue to look productive good and bad; because seemingly good ratios can be masking something bad bad; to try to rework the numbers to have them look good basically irrelevant; there really is no need to analyze financial statements When analyzing financial statements, ratio analysis gives ____ and provides insight into ____. Answer very little useful information; practically nothing good practice in logical thinking; what has occurred and the logic behind it financiers something to do during slow periods; how the financier spends his time accountants a reason to provide financial statements; why accountants do what they do while at work Given: Economic State[i]: Good Average Expected Return[i]: 10% 8% Probability[i]: 30% 70% What is the Standard Deviation? Answer 3% 8.4% 0.92% 5.6% Chapter 9: XYZ has a projected project to install a new press. The expected cash revenue is $175,000 per year. Expected yearly expenses are: Operatinf costs of $50,000; Rental of $17,000; Utilities of $20,500; and Depreciation of $10,000. The tax rate is 35%. What is the expected After-Tax Operating Cash Flow for the first year? Answer $65,500 $60,375 $77,500 $97,500 A stock just paid a dividend of $1.60 per year. The dividend is expected to grow at 3% per year indefinately. 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Answer backwards forward future option What policies did countries institute after the Great War that help lead to the Great Depression? Answer A. Mandatory military service B. Trade restrictions C. High tariffs D. Isolationism Only B., C. and D. All of the above

Feasibility Study and Business Plan Development:

One vehicle for acquiring an understanding of the entrepreneurial process is through the preparation of a start-up business plan. The focus of this experience is to select a concept and create a complete and persuasive business plan. Writing a business plan requires you to ask tough questions about the nature of the business.

What are the benefits of your product or service?

What is the target market and how will you penetrate it?

How will you develop and produce the product or service?

What is required from the management team?

What are the risks of the venture and what can you do to reduce them?

What are the financial implications of the plan?

What resources, including funding, are required to successfully create the business plan?

To understand the related entrepreneurial process, students will take a hands-on approach. Students will decide upon a concept and develop a feasibility study after being approved. Based on that work, you will develop a comprehensive business plan. In most cases, the primary objective of your business plan will be to receive funding if you want to become an entrepreneur. Your plan will be prepared in three phases and you will submit the plan as a written and soft document and present it to the class.

Phase 1: Concept Approval – The initial task is to select and propose a business idea to the instructor for approval. ( Project type is Beauty Salon ).

Phase 2: The Feasibility Plan – This experience begins with the creation of a feasibility plan. This will evolve into a business plan that will be a tool to assist you to put the concepts we have addressed in class in action. Resources will be provided to help you with the plan, including software that can assist you through the process. After you propose and select the type of business and begin the process of assessing its feasibility and potential, the objective is to make this a positive, obtainable, and valuable experience.

Phase 3: The Business Plan – The course is designed to provide resources to assist you throughout the development of the plan. This includes the opportunity to review previous plans. You can “approach” a mentor that will be an industry or subject matter expert to assist you with the planning process.

The Written Plan: The body of the written business plan should be no more than 25 pages including the executive summary and all financial statements. The business plan’s financial section will include a complete set of financial statements (income statement, balance sheet, cash flow) for the initial three to five years of the venture. An assumption list will accompany the statements. Detailed spreadsheets and appendices can follow the text; however, the total plan should not exceed 30 pages.

Plans must include an explanation of the offering to investors that indicate the investment required, expected ROI, deal structure, marketing plan, operations plan, and management team description. Potential exit or company sustainability strategies also must be included.

Business Plan Presentation: Strong written and oral skills greatly facilitate success in the business world. Those individuals that can effectively communicate their ideas will have an advantage over those that cannot.

( Will be Project type is Beauty Salon ). Use an assumption list the statements

International Research Journal of Applied Finance ISSN 2229 – 6891

Vol. VI Issue – 8 August, 2015 Case Study Series

A Stock Valuation Case: An Application of the “Method of Comparables” for Macy’s Shares

Halil D. Kaya* ,Julia S. Kwok

Abstract

The primary focus of this case is the application of the “Method of Comparables” in the estimation of the value of a security. An investment decision will be made based on the comparison of the selling price and the estimated value. A security will be good for purchase if the estimated value is higher than the market price. This method utilizes basic financial ratios that are commonly provided by financial web sites. First, using Yahoo Finance website, the pricing, sales, book value of equity and shares outstanding data are collected for both the target firm and the competitor firms. Then, the pricing multiples (i.e. price earnings ratio, price to sales ratio and price to book ratio) of the competitors are calculated. After that, those multiples along with the target firm’s earnings, sales, book value and shares outstanding data are used to estimate target firm’s share value. The case also examines the impact of treating “negatives” in the data. Students will learn that replacing negative earnings with zeros tend to induce less bias in target firm’s value estimation than excluding the “negative” data altogether.

Introduction

March 14, 2015 was a sunny day. Mary took advantage of the nice weather to have lunch at the Mall. On her way back to work, she walked by Susan’s investment office. Susan was Mary’s college roommate. They both liked shopping together to find new fashionable clothes. Looking at her watch, Mary realized she had half an hour to spend. She thought she would drop by and say hello to Susan.

The Performance of Macy’s

“Hi, Susan, how are you?” How is your business?” said Mary. Susan was a recent finance graduate. Susan replied, “I am doing fine. Thank you. After so many years, the market is still recovering from the mortgage crisis; many investors have been buying back stocks that they have sold during the crisis. What are you up to?” “I want to start my investment in securities, too. I have a couple thousand dollars, would Macy’s be a good stock to invest in now? That was our favorite store to shop among all of the department stores,” Mary exclaimed. She added, “Also, I read from Motley’s Fool’s article on Macy’s today about its earnings per share growth for the last 16 quarters” (Zahid Waheed, 2014).

In response to Mary’s questions, Susan checked the monthly adjusted returns of Macy’s in Yahoo Finance. She found that, since March 2010, Macy’s stock price had an average annual increase of 23.5% over the last 5 years. The stock rose from $19.98 to $57.38. Susan then told Mary that Macy’s was indeed a growing stock. She added that its success could be attributed to the omni-channel integration, e-commerce and magic selling strategies which allowed merging of sales channels, online shopping and better customer care. Since investment strategy 101 is to buy low, and sell high, given Macy’s stock price had been going up, Susan was not sure whether Macy’s was currently overvalued or undervalued by the market.

The Method of Comparables

Susan remembered her class lecture on the two types of valuation of stocks, namely absolute and relative evaluation. The absolute evaluation focuses on finding the intrinsic value of the security based on fundamentals. That involves more complicated models of discounting cash flows from dividends, operations and residual income.

On the other hand, relative evaluation is quick and easy to use. It assumes two similar securities should sell for one price in an efficient market, i.e. “Law of One Price.” So an analyst can estimate its stock price by multiplying target company’s specific earnings, sales and equity value data by the earning, sales and equity “per share” financial multiples of its competitors.

Since Mary was not familiarized with financial models, Susan decided to use the easy-toperform-and-analyze “Comparables Method” to estimate the relative value of Macy’s stock.

The Financial Data

Dillards, JC Penney and Nordstrom were selected as competitors of Macy’s as they were all in retail department store business. Susan would need some financial data regarding these companies. She went to SEC’s (i.e. Securities and Exchange Commission) website and downloaded these companies’ most recent balance sheet and income statement data. Out of those statements, she knew that she would need the EPS (i.e. earnings per share), the sales number, the number of outstanding shares, and the book value of equity. She also knew that she would need the current share price for each company. After some work, she had found all the necessary information to run the analysis. Below were the data that she had gathered:

All data are in US$ except for the number of outstanding shares. The share price as of March 15, 2014 is shown in the first column. The “Earnings per share” is shown in the second column. The third column reports the book value of equity. The last column shows the number of outstanding shares.

Firm

P ($)

EPS ($)

Sales ($)

BV of equity ($)

# of shares

Macy's

58.58

3.93

27,931 mil.

6,249 mil.

378.3 mil.

Dillard's

90.61

7.10

6,532 mil.

1,992 mil.

45.6 mil.

JC Penney

8.71

-5.57

11,859 mil.

3,087 mil.

249.3 mil.

Nordstrom

61.33

3.77

12,166 mil.

2,080 mil.

194.5 mil.

The Decision

Susan thinks that the following steps would be necessary to perform the analysis:

1.Based on the data above, calculate Sales per share, BV of equity/share values of all firms. Note that EPS is directly given.

2.Calculate P/E, P/Sales, and P/B for all of Macy’s competitors based on the data obtained.

3.Find the average of the P/E, P/Sales, and P/B multiples for the three competitors.

4.Multiply those averages calculated in step 3 with Macy’s EPS, Sales per share, and BV of equity/share values, respectively to get three value estimates for Macy’s shares.

5.The average of the three estimates would then be Susan’s best estimate of Macy’s value per share.

answer # 1-5 please