In: Finance
What are the similarities of Total asset turn over and capital intensity. What does a high and low value indicate? why are these important equations
In: Finance
Discuss a short and long-term plan for a perennially losing team and identify specific steps that could be taken to increase income or generate victories.
In: Finance
At 6.5% APR, what is the present value of $2263 per year forever, if the first payment will be received 16 years from today? (Rounded to the nearest 10 cents.)
In: Finance
SUBJECT is FINANCE
Free Cash Flows
Rhodes Corporation’s financial statements are shown below.
Rhodes Corporation: Income Statements for Year Ending
December 31
(Millions of Dollars)
| 2020 | 2019 | ||||
| Sales | $ | 13,000 | $ | 11,000 | |
| Operating costs excluding depreciation | 11,588 | 9,682 | |||
| Depreciation and amortization | 400 | 370 | |||
| Earnings before interest and taxes | $ | 1,012 | $ | 948 | |
| Less interest | 240 | 200 | |||
| Pre-tax income | $ | 772 | $ | 748 | |
| Taxes (25%) | 193 | 187 | |||
| Net income available to common stockholders | $ | 579 | $ | 561 | |
| Common dividends | $ | 202 | $ | 200 | |
Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)
| 2020 | 2019 | ||||
| Assets | |||||
| Cash | $ | 650 | $ | 600 | |
| Short-term investments | 120 | 100 | |||
| Accounts receivable | 2,750 | 2,500 | |||
| Inventories | 1,650 | 1,400 | |||
| Total current assets | $ | 5,170 | $ | 4,600 | |
| Net plant and equipment | 3,750 | 3,500 | |||
| Total assets | $ | 8,920 | $ | 8,100 | |
| Liabilities and Equity | |||||
| Accounts payable | $ | 1,300 | $ | 1,200 | |
| Accruals | 650 | 600 | |||
| Notes payable | 192 | 100 | |||
| Total current liabilities | $ | 2,142 | $ | 1,900 | |
| Long-term debt | 1,300 | 1,200 | |||
| Total liabilities | $ | 3,442 | 3,100 | ||
| Common stock | 3,901 | 3,800 | |||
| Retained earnings | 1,577 | 1,200 | |||
| Total common equity | $ | 5,478 | $ | 5,000 | |
| Total liabilities and equity | $ | 8,920 | $ | 8,100 | |
Suppose the federal-plus-state tax corporate tax is 25%. Answer the following questions.
2020: $ million
2019: $ million
2020: $ million
2019: $ million
$ million
%
| After-tax interest payment | $ million |
| Reduction (increase) in debt | $ million |
| Payment of dividends | $ million |
| Repurchase (Issue) stock | $ million |
| Purchase (Sale) of short-term investments | $ million |
In: Finance
You are the director of operations for your company, and your vice president wants to expand production by adding new and more expensive fabrication machines. You are directed to build a business case for implementing this program of capacity expansion. Assume the company's weighted average cost of capital is 13%, the after-tax cost of debt is 7%, preferred stock is 10.5%, and common equity is 15%. As you work with your staff on the first cut of the business case, you surmise that this is a fairly risky project due to a recent slowing in product sales. As a matter of fact, when using the 13% weighted average cost of capital, you discover that the project is estimated to return about 10%, which is quite a bit less than the company's weighted average cost of capital. An enterprising young analyst in your department, Harriet, suggests that the project is financed from retained earnings (50%) and bonds (50%). She reasons that using retained earnings does not cost the firm anything since it is cash you already have in the bank and the after-tax cost of debt is only 7%. That would lower your weighted average cost of capital to 3.5% and make your 10% projected return look great.
Based on the scenario above, post your reactions to the following questions and concerns:
What is your reaction to Harriet's suggestion of using the cost of debt only? Is it a good idea or a bad idea? Why? Do you think capital projects should have their own unique cost of capital rates for budgeting purposes, as opposed to using the weighted average cost of capital (WACC) or the cost of equity capital as computed by CAPM? What about the relatively high risk inherent in this project? How can you factor into the analysis the notion of risk so that all competing projects that have relatively lower or higher risks can be evaluated on a level playing field?
In: Finance
Exercise Example - Capital Budgeting Project Analysis - Chapter 5
As director of capital budgeting, you are reviewing three potential investment projects with the following cost and cash flow projections.
|
Cash Flow |
Project A |
Project B |
Project C |
|
Investment Cost |
($500,000) |
($375,000) |
($475,000) |
|
Year One Cash Flow |
$200,000 |
$175,000 |
$250,000 |
|
Year Two Cash Flow |
$180,000 |
$50,000 |
$200,000 |
|
Year Three Cash Flow |
$100,000 |
$50,000 |
$75,000 |
|
Year Four Cash Flow |
$80,000 |
$50,000 |
$30,000 |
|
Year Five Cash Flow |
$140,000 |
$300,000 |
$30,000 |
In: Finance
You are the director of operations for your company, and your vice president wants to expand production by adding new and more expensive fabrication machines. You are directed to build a business case for implementing this program of capacity expansion. Assume the company's weighted average cost of capital is 13%, the after-tax cost of debt is 7%, preferred stock is 10.5%, and common equity is 15%. As you work with your staff on the first cut of the business case, you surmise that this is a fairly risky project due to a recent slowing in product sales. As a matter of fact, when using the 13% weighted average cost of capital, you discover that the project is estimated to return about 10%, which is quite a bit less than the company's weighted average cost of capital. An enterprising young analyst in your department, Harriet, suggests that the project is financed from retained earnings (50%) and bonds (50%). She reasons that using retained earnings does not cost the firm anything since it is cash you already have in the bank and the after-tax cost of debt is only 7%. That would lower your weighted average cost of capital to 3.5% and make your 10% projected return look great.
Based on the scenario above, post your reactions to the following questions and concerns:
What is your reaction to Harriet's suggestion of using the cost of debt only? Is it a good idea or a bad idea? Why? Do you think capital projects should have their own unique cost of capital rates for budgeting purposes, as opposed to using the weighted average cost of capital (WACC) or the cost of equity capital as computed by CAPM? What about the relatively high risk inherent in this project? How can you factor into the analysis the notion of risk so that all competing projects that have relatively lower or higher risks can be evaluated on a level playing field?
In: Finance
You want to borrow $60,000 for a new tricked-out Hummer H2 for your high school basketball star son. If you can somehow qualify for an outrageously low interest rate of 4.5%, compounded monthly for a six-year (60 month) loan, what amount will your monthly payment be?
In: Finance
Growth for the sake of growth is not always in the best interest of the firm and shareholder value. What are some of the things the firm can do to increase its growth potential, and when might an action to increase growth be contrary to the interest of increasing the firm's value?
In: Finance
Which do you prefer: a bank account that pays 5.1 % per year (EAR) for three years or
A. An account that pays 2.8 % every six months for three years?
B. An account that pays 6.8 % every 18 months for three years?
C. An account that pays 0.65 % per month for three years?
(Note: Compare your current bank EAR with each of the three alternative accounts. Be careful not to round any intermediate steps less than six decimal places.)
-----------------------
If you deposit $ 1 into a bank account that pays 5.1 % per year for three years: The amount you will receive after three years is [...]?
In: Finance
All else constant, an increase in the days inventory held period will have what effect on the net present value (NPV) of working capital
a. it depends
b. decrease in NPV
c. increase in NPV
d. no change in NPV
In: Finance
A project has an initial requirement of $195,422 for new equipment and $14,626 for net working capital. The installation costs to get the new equipment in working condition are 2,873. The fixed assets will be depreciated to a zero book value over the 5-year life of the project and have an estimated salvage value of $115,708. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $76,206 and the cost of capital is 13% What is the project's NPV if the tax rate is 34%?
In: Finance
Derek currently has $13,896.00 in an account that pays 6.00%. He will withdraw $5,447.00 every other year beginning next year until he has taken 5.00 withdrawals. He will deposit $13896.0 every other year beginning two years from today until he has made 5.0 deposits. How much will be in the account 26.00 years from today?
In: Finance
What is the essential idea underlying Risk - adjusted return on Capital Models and how does this model relate to the concept of duration?
In: Finance