Question No. 1 (Marks 15)
C Company’s forecasted 2020 financial statements are given below, along with industry average ratios.
C Company: Forecasted Balance sheet as of December 31, 2020
|
Cash |
72,000 |
|
Accounts Receivable |
439,000 |
|
Inventories |
894,000 |
|
Total Current Assets |
1,405,000 |
|
Land and Buildings |
238,000 |
|
Machinery |
132,000 |
|
Other Fixed assets |
61,000 |
|
Total Assets |
,1,836,000 |
|
Equity & Liabilities |
|
|
Accounts and Notes Payable |
432,000 |
|
Accrued liabilities |
170,000 |
|
Total Current liabilities |
602,000 |
|
Long term Debt |
404,290 |
|
Common stock |
575,000 |
|
Retained earnings |
254,710 |
|
Total Equity & Liabilities |
1,836,000 |
C Company: Forecasted Income Statement for the year ended December 31, 2020
|
Sales |
4,290,000 |
|
Cost of goods sold |
3,580,000 |
|
Gross profit |
710,000 |
|
General Selling and Admin Expenses |
236,320 |
|
Depreciation |
159,000 |
|
Other Expenses |
134,000 |
|
Profit before Tax |
180,680 |
|
Taxes 40% |
72,272 |
|
Profit after tax |
108,408 |
Per Share data
EPS 4.71
DPS .95
Market Price Per Share 23.57
P/E Ratio 5 times
Total No. of Shares 23,000
Industry Average Ratios - 2020
|
Current Ratio |
2.7 |
|
Inventory Turnover |
7 times |
|
Average Collection Period |
32 days |
|
Total Asset turnover |
2.6 times |
|
Debt Ratio |
50% |
|
Profit Margin on Sales |
3.5% |
Quesytion : Calculate C Company’s forecasted Ratios, compare them the industry average data and comment briefly on strength and weaknesses of the company ?
In: Accounting
Question
C Company’s forecasted 2020 financial statements are given below, along with industry average ratios.
C Company: Forecasted Balance sheet as of December 31, 2020
|
Cash |
72,000 |
|
Accounts Receivable |
439,000 |
|
Inventories |
894,000 |
|
Total Current Assets |
1,405,000 |
|
Land and Buildings |
238,000 |
|
Machinery |
132,000 |
|
Other Fixed assets |
61,000 |
|
Total Assets |
,1,836,000 |
|
Equity & Liabilities |
|
|
Accounts and Notes Payable |
432,000 |
|
Accrued liabilities |
170,000 |
|
Total Current liabilities |
602,000 |
|
Long term Debt |
404,290 |
|
Common stock |
575,000 |
|
Retained earnings |
254,710 |
|
Total Equity & Liabilities |
1,836,000 |
C Company: Forecasted Income Statement for the year ended December 31, 2020
|
Sales |
4,290,000 |
|
Cost of goods sold |
3,580,000 |
|
Gross profit |
710,000 |
|
General Selling and Admin Expenses |
236,320 |
|
Depreciation |
159,000 |
|
Other Expenses |
134,000 |
|
Profit before Tax |
180,680 |
|
Taxes 40% |
72,272 |
|
Profit after tax |
108,408 |
Per Share data
EPS 4.71
DPS .95
Market Price Per Share 23.57
P/E Ratio 5 times
Total No. of Shares 23,000
Industry Average Ratios - 2020
|
Current Ratio |
2.7 |
|
Inventory Turnover |
7 times |
|
Average Collection Period |
32 days |
|
Total Asset turnover |
2.6 times |
|
Debt Ratio |
50% |
|
Profit Margin on Sales |
3.5% |
Required: Calculate C Company’s forecasted Ratios, compare them the industry average data and comment briefly on strength and weaknesses of the company.
In: Accounting
Volmar Company had sales in 2020 of $1,602,000 on 53,400 units.
Variable costs totalled $534,000, and fixed costs totalled
$911,400.
A new raw material is available that will decrease the variable
costs per unit by 20% (or $2.00). However, to process the new raw
material, fixed operating costs will increase by $43,500.
Management feel that one half of the decline in the variable costs
per unit should be passed on to customers in the form of a sales
price reduction. The marketing department expects that this sales
price reduction will result in a 10% increase in the number of
units sold.
Prepare a CVP income statement for 2020: (Round per
unit cost to 2 decimal places, e.g. 15.25.)
(a) Assuming the changes have not been made:
| VOLMAR
COMPANY CVP Income Statement (Unchanged) December 31, 2020For the Month Ended December 31, 2020For the Year Ended December 31, 2020 |
||||
| Total | Per Unit | |||
| Operating incomeFixed costsContribution marginVariable costsSales | $ | $ | ||
| Fixed costsContribution marginSalesVariable costsOperating income | ||||
| SalesContribution marginFixed costsVariable costsOperating income |
$ |
|||
| Fixed costsContribution marginVariable costsSalesOperating income | ||||
| SalesContribution marginOperating incomeFixed costsVariable costs |
$ |
|||
(b) Assuming that changes are made as
described.
| VOLMAR
COMPANY CVP Income Statement (with changes) December 31, 2020For the Month Ended December 31, 2020For the Year Ended December 31, 2020 |
||||
| Total | Per Unit | |||
| Fixed costsContribution marginOperating incomeVariable costsSales | $ | $ | ||
| Operating incomeVariable costsSalesFixed costsContribution margin | ||||
| Operating incomeVariable costsFixed costsSalesContribution margin |
$ |
|||
| Contribution marginSalesVariable costsOperating incomeFixed costs | ||||
| Contribution marginOperating incomeSalesFixed costsVariable costs |
$ |
|||
In: Accounting
Vogl Company is a U.S. firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its sales are from exports. Its foreign cash inflows to be received from exporting and cash outflows to be paid for imported supplies over the next year are shown in the following table:
|
Currency |
Total Inflow |
Total Outflow |
|
Canadian dollars (C$) |
C $35,000,000 |
C $4,000,000 |
|
New Zealand dollars (NZ$) |
NZ $5,000,000 |
NZ $1,000,000 |
|
Mexican pesos (MXP) |
MX.P. 12,000,000 |
MX.P. 10,000,000 |
|
Singapore dollars (S$) |
S $4,000,000 |
S $10,000,000 |
The spot rates and one-year forward rates for these currencies as of today are as follows:
|
Currency |
Spot Rate |
One-Year Forward Rate |
|
C$ |
$ 0.75 |
$ 0.80 |
|
NZ$ |
0.60 |
0.58 |
|
MXP |
0.18 |
0.15 |
|
S$ |
0.65 |
0.60 |
Based on the information provided, determine the net exposure of each foreign currency in US dollars. 8 Marks
Given the forecast of the Canadian dollar along with the forward rate of the Canadian dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Canadian dollars one year forward? Would you hedge the Canadian dollar position? Why?
5 Marks
Given the forecast of the Singapore dollar along with the forward rate of the Singapore dollar, what is the expected increase or decrease in US dollar cash flows that would result from hedging the net cash flows in Singapore dollars one year forward? Would you hedge the Singapore dollar position? Why?
In: Finance
9-1. Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expanded into horizontal drilling techniques for the development of the massive deposits of both gas and oil in shale formations. The company’s operations in the Haynesville shale (located in northwest Louisiana) have been so significant that it needs to construct a natural gas gathering and processing center near Bossier City, Louisiana, at an estimated cost of $70 million.
To finance the new facility, Nealon has $20 million in profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining $50 million. The decision to use so much debt financing for the project was largely due to the argument by company CEO Douglas Nealon Sr. that debt financing is relatively cheap relative to common stock (which the firm has used in the past). Company CFO Doug Nealon Jr. (son of the company founder) did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the out-of-pocket cost of financing was equal to the new interest that must be paid on the debt. However, the CFO also knew that by using debt for this project the firm would eventually have to use equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds.
The following balance sheet reflects the mix of capital sources that Nealon has used in the past. Although the percentages would vary over time, the firm tended to manage its capital structure back toward these proportions:
| Source of Financing | Target Capital Structure Weights |
|---|---|
| Bonds | 40% |
| Common Stock | 60% |
The firm currently has one issue of bonds outstanding. The bonds have a par value of $1,000 per bond, carry an 8 percent coupon rate of interest, have 16 years to maturity, and are selling for $1,035. Nealon’s common stock has a current market price of $35, and the firm paid a $2.50 dividend last year that is expected to increase at an annual rate of 6 percent for the foreseeable future.
What is the yield to maturity for Nealon’s bonds under current market conditions?
What is the cost of new debt financing to Nealon based on current market prices after both taxes (you may use a 21 percent marginal tax rate for your estimate) and flotation costs of $30 per bond have been considered?
What is the investor’s required rate of return for Nealon’s common stock? If Nealon were to sell new shares of common stock, it would incur a cost of $2.00 per share. What is your estimate of the cost of new equity financing raised from the sale of common stock?
Compute the weighted average cost of capital for Nealon’s investment using the weights reflected in the actual financing mix (that is, $20 million in retained earnings and $50 million in bonds).
Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 40 percent of the $70 million in new capital, or $28 million, using $20 million in retained earnings and raising $22 million through a new equity offering.
If you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part (d) or (e) to evaluate the new project? Why?
In: Finance
Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expanded into horizontal drilling techniques for the development of the massive deposits of both gas and oil in shale formations. The company's operations in the Haynesville shale (located in northwest Louisiana) have been so significant that it needs to construct a natural gas gathering and processing center near Bossier City, Louisiana, at an estimated cost of $90 million.
To finance the new facility, Nealon has $30 million in profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining $60million. The decision to use so much debt financing for the project was largely due to the argument by company CEO Douglas Nealon Sr. that debt financing is relatively cheap relative to common stock (which the firm has used in the past). Company CFO Doug Nealon Jr. (son of the company founder) did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the out-of-pocket cost of financing was equal to the new interest that must be paid on the debt. However, the CFO also knew that by using debt for this project the firm would eventually have to use the equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds.
The following balance sheet,
|
SOURCE OF FINANCING |
TARGET CAPITAL STRUCTURE WEIGHTS |
|
|
Bonds |
40 % |
|
|
Common stock |
60 % |
|
reflects the mix of capital sources that Nealon has used in the past. Although the percentages would vary over time, the firm tended to manage its capital structure back toward these proportions.
The firm currently has one issue of bonds outstanding. The bonds have a par value of
$1,000per bond, carry a coupon rate of 99percent, have 16 years to maturity, and are selling for $1,050.
Nealon's common stock has a current market price of $ 34, and the firm paid a $2.20dividend last year that is expected to increase at an annual rate of 88percent for the foreseeable future.
a. What is the yield to maturity for Nealon's bonds under current market conditions?
b.What is the cost of new debt financing to Nealon based on current market prices after both taxes (you may use a marginal tax rate of 35 percent for your estimate) and flotation costs of $40per bond have been considered?
Note : Use N=16 for the number of years until the new bond matures.
c.What is the investor's required rate of return for Nealon's common stock? If Nealon were to sell new shares of common stock, it would incur a cost of $2.00 per share. What is your estimate of the cost of new equity financing raised from the sale of common stock?
d.Compute the weighted average cost of capital for Nealon's investment using the weights reflected in the actual financing mix (that is, $30 million in retained earnings and $60million in bonds).
e.Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 40percent of the $90 million in new capital, or $36 million, using $30 million in retained earnings and raising $24 million through a new equity offering.
f.If you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part (d ) or (e ) to evaluate the new project? Why?
In: Finance
Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expanded into horizontal drilling techniques for the development of the massive deposits of both gas and oil in shale formations. The company's operations in the Haynesville shale (located in northwest Louisiana) have been so significant that it needs to construct a natural gas gathering and processing center near Bossier City, Louisiana, at an estimated cost of $50 Million.
To finance the new facility, Nealon has $10 Million in profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining $40 million. The decision to use so much debt financing for the project was largely due to the argument by company CEO Douglas Nealon Sr. that debt financing is relatively cheap relative to common stock (which the firm has used in the past). Company CFO Doug Nealon Jr. (son of the company founder) did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the out-of-pocket cost of financing was equal to the new interest that must be paid on the debt. However, the CFO also knew that by using debt for this project the firm would eventually have to use equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds. The following balance sheet, reflects the mix of capital sources that Nealon has used in the past. Although the percentages would vary over time, the firm tended to manage its capital structure back toward these proportions.
The firm currently has one issue of bonds outstanding. The bonds have a par value of $1000 per bond, carry a coupon rate of 6%, have 16 years to maturity, and are selling for $1055. Nealon's common stock has a current market price of $42, and the firm paid a $2.20 dividend last year that is expected to increase at an annual rate of 6% for the foreseeable future.
BONDS 40%
COMMON STOCK 60%
a. What is the yield to maturity for Nealon's bonds under current market conditions?
b. What is the cost of new debt financing to Nealon based on current market prices after both taxes (you may use a marginal tax rate of 36% for your estimate) and flotation costs of $30 per bond have been considered?
Note: Use N=16 for the number of years until the new bond matures.
c. What is the investor's required rate of return for Nealon's common stock? If Nealon were to sell new shares of common stock, it would incur a cost of
$3.00 per share. What is your estimate of the cost of new equity financing raised from the sale of commonstock?
d. Compute the weighted average cost of capital for Nealon's investment using the weights reflected in the actual financing mix(that is,
$10 million in retained earnings and $40 million in bonds).
e. Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 40 percent of the
$50 million in new capital, or $20
million, using $20 million in retained earnings and raising $10 million through a new equity offering.
f. If you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part (d) or (e) to evaluate the new project? Why?
In: Finance
Read:
One industry with an impact on both undergraduate and MBA
students is textbook publishing. Traditional printed textbooks are
being challenged on one hand by self-publishing firms offering very
low prices for specific instructor materials, and on the other hand
by a need to offer digital resources that substitute for printed
materials. Large textbook publishers are increasingly investing in
adaptive learning systems such as Wiley-PLUS, Cengage MindTap, and
McGraw-Hill Connect. Complicating factors for the publishers is the
changing business model of renting textbooks (printed and
electronic). U.S. university book rental was about 25 percent of
student purchasing volume in 2015.
Use the five forces model (with complements) to think through the
various impacts such technology shifts may have on the textbook
industry. Include in your response answers to the following
questions.
(a) Identify the threat of new entrants. Choose one of the concepts (Economies of scale, Network effects, Customer switching costs, Capital requirements, Advantages independent of size, Government policy, Credible threat of retaliation) to discuss the intensity of threat of new entrants. And discuss whether the intensity of threat of new entrants is high or low.
(b) Identify the power of supplies. Discuss whether the power of supplies is high or low (1-e) Identify the power of buyers. Discuss whether the power of buyer is high or low (1-g) Identify the threat of substitutes.
(c) Discuss whether the threat of substitutes is high or low
(d) Identify the rivalry among competitors. Choose one of the concepts (Competitive industry structure, Industry growth, Strategic commitments, Exit barriers) to discuss the intensity of rivalry among competitors. And discuss whether the intensity of rivalry among competitors is high or low.
In: Economics
Apple Computer CEO Steve Jobs announced he was taking a leave of absence for health reasons. Jobs has been fighting cancer and also recently underwent a liver transplant. Even though the computer giant is in good hands with Chief Operating Officer Tom Cook taking over the stock price fell by US$6.40, or nearly two percent, on the news.
Jobs is widely known as a visionary and a micromanager. Under his leadership Apple has transformed the computing industry. While Jobs' health outlook is unknown many investors are betting on his recovery and return. Those who bought Apple stock when Jobs stepped down in 2004 for health reasons made a nice profit when he returned to the helm.
Question
“When a financial manager makes good or bad financial decisions the impact of these decisions will be reflected in the company's Stock price”. Do you agree with the decision taken in the above case?
What decisions you will take to improve the stock price of Apple Computers in this situation?
In: Economics
, please write regarding whether you believe earnings management is or is not ethical. Please write from the perspective of a CEO of a publicly-traded corporation who has a fiduciary duty to his or her shareholders. A top-scoring answer will address balancing the duty of earning profits for shareholders against the responsibility to behave ethically. plesse answer as loong as you can
In: Accounting