Suppose your chosen company requires AUD 10 Million to finance a new project and your finance...

Suppose your chosen company requires AUD 10 Million to finance a new project and your finance managers are evaluating whether to borrow or issue new shares.

b) Identify 2 key financial ratios that will be important to shareholders.

Solutions

Expert Solution

The two key ratios which will be important to shareholders would be the price earning ratio and the earnings per share.

The earnings per share is computed as Net income divided by the number of shares outstanding and this measure is important for shareholders because the share price depends upon the earnings per share of the business. A higher number of outstanding shares reduces the earnings per share for the shareholders.

The price earnings ratio is another factor which is important for shareholders since it impacts their wealth directly. Higher the earnings per share higher will be the price commanded by the share in the market at a given P/E ratio and vice versa. So the number of shares issued by the management impacts the shareholders directly.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Suppose your chosen company requires AUD 10 Million to finance a new project and your finance...

Suppose your chosen company requires AUD 10 Million to finance a new project and your finance managers are evaluating whether to borrow or issue new shares. a) Identify 2 key financial ratios that will be important to creditors.

Your company plans to raise $100 million to finance its new two-year project by issuing new...

Your company plans to raise $100 million to finance its new two-year project by issuing new two-year bonds (with annual coupons and annual compounding). Your company and its new project are currently considered risk-free. Unfortunately, covenants in the preexisting debt issued during harder times impose restrictions on the amount of new debt. Specifically, if the face value of the new bond issue is below $100 million, your company can promise to pay an annual coupon of up to 5%. However,...

Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows...

Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows of $2, $4 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? a. The firm should reject the project, as the IRR is lower than the WACC. b. The firm should accept the project, as the IRR is higher than the WACC. c. The firm should accept the project, as the...

Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows...

Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows of $2, $4 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? The firm should reject the project, as the IRR is lower than the WACC. The firm should accept the project, as the IRR is higher than the WACC. The firm should accept the project, as the NPV is positive....

Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows...

Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows of $2, $4 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? The firm should reject the project, as the IRR is lower than the WACC. The firm should accept the project, as the IRR is higher than the WACC. The firm should accept the project, as the NPV is positive....

Question 1: You are currently evaluating a new project for your company. The project requires an...

Question 1: You are currently evaluating a new project for your company. The project requires an initial investment in equipment RM 90,000 and an investment in working capital of RM10,000 at the beginning (t=0). The project is expected to produce sales revenues of RM120, 000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The asset is depreciated over the project’s life using straight-line depreciation method. At the end of the project (t=3), you can sell...

The finance manager of USQ Limited has a surplus of AUD 1 million and is interested...

The finance manager of USQ Limited has a surplus of AUD 1 million and is interested in using this money for triangular arbitrage. The Finance manager can either buy or sell at the quotes given below. Citibank 1 AUD = 0.76 USD Westpac 1 AUD = 1.05 NZD NAB 1 USD = 1.39 NZD Suppose we ignore all transaction costs. Show step by step how triangular arbitrage is possible using these quotes and show the...

Suppose your company needs $10 million to build a new assembly line. Your target debt-equity ratio...

Suppose your company needs $10 million to build a new assembly line. Your target debt-equity ratio is .4. The flotation cost for new equity is 10 percent and the flotation cost for debt is 7 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company’s weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations...

Acme is considering a new project that requires an investment of $100 million in machinery. This...

Acme is considering a new project that requires an investment of $100 million in machinery. This is expected to produce earnings before interest and taxes of $16 million per year for 4 years. The machinery will be fully depreciated to a zero-book value over 4 years using straight-line depreciation. Working capital costs are negligible. The tax rate is 25%. The unlevered cost of capital is 13%. They have a target debt ratio (debt/value) for the firm of 45%. Joker plans...

Your company is considering a new 3-year project that requires an initial investment in equipment of...

Your company is considering a new 3-year project that requires an initial investment in equipment of $3 million. Prior to this, you had engaged a consultant to study the feasibility of the new project and after an extensive market survey, the consultant confirmed your belief that the project would be viable. Your company is charged $100,000 for the feasibility study. The equipment will be depreciated straight line to zero over the 3 years of its useful life. In addition, you...

Subjects