...Comments: The case provides an excellent vehicle for exploring and challenging the notion of optimal capital structure in theory and practice. American Home Products (AHP) is a very successful firm that has not debt in its capital structure. Because of its efficiency in asset management and its high level of profitability, AHP does not need debt to finance its operations. The case focuses on the theory of optimal capital structure and the practical problem of determining an optimal debt ratio. Questions 1. How much business risk does American Home Products face? Some of the pros/cons affecting AHP’s business risk are: PROS: • Sales stability, net sales has grown steadily from 1972-1981 • Strong Marketing expertise • Tight financial control • Stable, consistent financial growth and profitability • Risk aversion can work in favor of the company(no licensing costs, R+D costs) • Threat of new competitors is low because the pharmaceutical industry requires high start-up costs and the companies controlling the industry are very stable and mature. CONS: • Conservative Corporate Culture affect innovations • High cost in marketing to erode competitor’s head start. They are heavily depending on current products and marketing skills. But competitors can also strengthen their marketing strategies. • Hard to expand into new markets due to low R+D • Reticence does not provide confidence to the public • Threat of substitutes...
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...1. How much business risk does AHP face? Stable annual growth (10~15%) and profit margin (11~12%). Overall low-risk investments; ‘proven’ formulas instead of R&D. AAA Bond Rating. (EBIT 1981 / EBIT 1980) / % increase in sales. (954,8 / 857,5) / (4131,2 / 3798,5) = 1,02 2. How much financial risk would AHP face at each of the three proposed levels of debt shown in exhibit 3? DFL = % change EPS / % change EBIT = 1,12 / 1,11 = 1,009 Higher DFL means higher EPS variability 0% 1 30% 1,06 50% 1,1 70% 1,15 Debt to Capital = total debt / net worth Higher DtC ratio means higher risk 0% 0,009 30% 0,428 50% 0,99 70% 2,33 3. How much potential value, if any, can AHP create for its shareholders at each of the three proposed levels of debt? EPS goes up as % of debt goes up ($3.18 - $3.49) 0% $3.18 30% $3.33 50% $3.41 70% $3.49 Dividends rise 0% $1.90 30% $2.00 50% $2.04 70% $2.10 4. What capital structure would you recommend as appropriate for AHP? To determine the ‘debt capacity’ of a firm: EBIT/Interest Current: 954.8/2.3 = 415 Debt @ 30%: 922.2/52.7 = 17.5 • 5. 6. 7. 8. 9. 10. Debt @ 50%: 922.2/87.8 = 10.5 Debt @ 70%: 922.2/122.9 = 7.5 All are great, so need to look at more figures What are the advantages of leveraging AHP? Access to additional capital • Tax shield – debt is tax deductible • Increase in shareholder value • Increase in EPS • Increase in Dividends What are the disadvantages? a. Higher risk How would leverage up affect...
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.... How much business risk does AHP face? Stable annual growth (10~15%) and profit margin (11~12%). Overall low-risk investments; ‘proven’ formulas instead of R&D. AAA Bond Rating. (EBIT 1981 / EBIT 1980) / % increase in sales. (954,8 / 857,5) / (4131,2 / 3798,5) = 1,02 2. How much financial risk would AHP face at each of the three proposed levels of debt shown in exhibit 3? DFL = % change EPS / % change EBIT = 1,12 / 1,11 = 1,009 Higher DFL means higher EPS variability 0% 1 30% 1,06 50% 1,1 70% 1,15 Debt to Capital = total debt / net worth Higher DtC ratio means higher risk 0% 0,009 30% 0,428 50% 0,99 70% 2,33 3. How much potential value, if any, can AHP create for its shareholders at each of the three proposed levels of debt? EPS goes up as % of debt goes up ($3.18 - $3.49) 0% $3.18 30% $3.33 50% $3.41 70% $3.49 Dividends rise 0% $1.90 30% $2.00 50% $2.04 70% $2.10 4. What capital structure would you recommend as appropriate for AHP? To determine the ‘debt capacity’ of a firm: EBIT/Interest Current: 954.8/2.3 = 415 Debt @ 30%: 922.2/52.7 = 17.5 • 5. 6. 7. 8. 9. 10. Debt @ 50%: 922.2/87.8 = 10.5 Debt @ 70%: 922.2/122.9 = 7.5 All are great, so need to look at more figures What are the advantages of leveraging AHP? Access to additional capital • Tax shield – debt is tax deductible • Increase in shareholder value • Increase in EPS • Increase in Dividends What are the disadvantages? a. Higher risk How would leverage up affect the...
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...1. How much business risk does AHP face? Stable annual growth (10~15%) and profit margin (11~12%). Overall low-risk investments; ‘proven’ formulas instead of R&D. AAA Bond Rating. (EBIT 1981 / EBIT 1980) / % increase in sales. (954,8 / 857,5) / (4131,2 / 3798,5) = 1,02 2. How much financial risk would AHP face at each of the three proposed levels of debt shown in exhibit 3? DFL = % change EPS / % change EBIT = 1,12 / 1,11 = 1,009 Higher DFL means higher EPS variability 0% 1 30% 1,06 50% 1,1 70% 1,15 Debt to Capital = total debt / net worth Higher DtC ratio means higher risk 0% 0,009 30% 0,428 50% 0,99 70% 2,33 3. How much potential value, if any, can AHP create for its shareholders at each of the three proposed levels of debt? EPS goes up as % of debt goes up ($3.18 - $3.49) 0% $3.18 30% $3.33 50% $3.41 70% $3.49 Dividends rise 0% $1.90 30% $2.00 50% $2.04 70% $2.10 4. What capital structure would you recommend as appropriate for AHP? To determine the ‘debt capacity’ of a firm: EBIT/Interest Current: 954.8/2.3 = 415 Debt @ 30%: 922.2/52.7 = 17.5 Debt @ 50%: 922.2/87.8 = 10.5 Debt @ 70%: 922.2/122.9 = 7.5 All are great, so need to look at more figures What are the advantages of leveraging AHP? Access to additional capital • Tax shield – debt is tax deductible • Increase in shareholder value • Increase in EPS • Increase in Dividends What are the disadvantages? a. Higher risk How would leverage up affect the company’s taxes? a. As debt goes...
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...1. A combination of business risk and financial risk shows the risk of an organization’s futurereturn on equity. Business risk is related to make a firm’s operation without any debt, whereasfinancial risk requires that the firm’s common stockholders make a decision to finance it withdebt. a) American Home Products has been operating on four main lines of business that are lessuncertainty about product demand; for example, one of its business lines is food productsbecause whenever people buy foods. It means that AHP’s business risk is low. As mentionedabove, if a firm does its operation activities regularly without leverage, it means that its businessrisk is not significant high. Thus, ratio of cash to total assets is calculated by following: Figure 1 Proportion of cash and total assets, 1976-1981 ($ in millions) 1981 1980 1979 1978 1977 1976 Cash 729.1 593.3 493.8 436.6 322.9 358.8 Total 2,588.5 2,370.3 2,090.7 1,862.2 1,611.3 1,510.9 Assets Proportion 28.2% 25.0% 23.6% 23.4% 20.0% 23.7% Situational Analysis American Home Products Corporation is a company that has almost debt-free balance sheet and growing cash reserves. For 29 consecutive years through 1981, the firm has increased sales, earnings, and dividends ranging between 10% and 15% annually. In the 1960s, the firm’s return on equity increased from 25% to 30% in the 1980s. This was due to their unwillingness to spend any money. Also, this strategy led the company to be able to pay out almost 60% of its annual earnings...
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...are given below: A ns. 1: At Present, American Home Products Corp. seems to have no business risk but may face a certain risk in the long run. As per the ratios, it should not worry about business risk as: Working capital is very healthy ($1472.8 million). Cash excess ($233 million) The high Return on Assets (ROA), high profit margin, low current-to-asset ratio and 49.71 collection days show that AHP can generate cash quickly, so it can maintain current high 14.1% in 1978 to 8.8% in 1981 (Exhibit 1) shows that it faces future risk of losing market shares in all its business lines if it does not foresee competition and A ns. 2: High ROE (30.3). High quick ratio (42.68). Low debt-to-equity ratio (0.09). Low debt-to-asset ratio (0.01) Degree of Financial Leverage EBIT Interest Preferred stock dividend DFL 30% Debt 922.2 52.7 0.4 1.062 50% Debt 922.2 87.8 0.4 1.106 70% Debt 922.2 122.9 0.4 1.155 t has: The above table shows that if AHP increases debt ratio, it will face a financial risk of increased debt-to-equity and debt-to-asset ratios resulting into solvency problems in long terms. AHP also face liquidity problems since the quick ratios decrease when the debt ratios increase. A ns. 3: The Company always focused on giving maximum return to its shareholders. At 70% debt, both the EPS and DPS are maximum as shown which implies possible increase in stock price which is beneficial to the shareholders due to their capital appreciation. Prateek Tayal (2011141) ...
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...Case Seminar Advanced Corporate Finance Tuesday 10:00 – 13:00, Room 23 Instructor: Tim Adam This case seminar discusses real-world business cases, which relate to the materials covered in Corporate Finance and Advanced Corporate Finance. The main topics are company valuation, capital structure, bankruptcy, corporate governance, project finance and corporate risk management. The main objective of the seminar is to apply the theoretical concepts of corporate finance and corporate governance to real-world situations. To do so we will discuss six Harvard Business School cases. In addition, there will be several company presentations of real-world business cases. This seminar has a high level of practical relevance, but it is also very labor intensive. Expect to spend at least eight hours each week on case preparations. Prerequisites All participants must have successfully passed Corporate Finance, and take Advanced Corporate Finance parallel or prior to this case seminar. Registration Students need to register for this seminar. Please submit your applications electronically (CV, most recent transcript) to Mrs. Bulwahn by April 8, 2016. If you do not attend the first session, your place may be given to other students on the waiting list. Evaluation Four case reports (80%), class participation (20%). Seminar attendance is obligatory. Course materials Cases can be purchased for a total cost of US$ 23.70 using a credit...
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...University of Nottingham Measuring Service Quality in Distribution Logistics Using SERVQUAL and AHP: A Case Study in a Pharmaceutical Wholesaler in Turkey HARIKA KARPUZCU MSc Operations Management University of Nottingham Measuring Service Quality in Distribution Logistics Using SERVQUAL and AHP: A Case Study in a Pharmaceutical Wholesaler in Turkey by Harika KARPUZCU 2006 A Dissertation presented in part consideration for the degree of “MSc Operations Management” Contents List of Tables.............................................................................................................................iii List of Figures ...........................................................................................................................iii Acknowledgements ................................................................................................................... iv Abstract ...................................................................................................................................... v CHAPTER 1: Introduction ..................................................................................................... 1 1.1. SERVQUAL............................................................................................................ 2 1.2. AHP......................................................................................................................... 4 1.3 Research Objectives .................
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...Proposal and Analysis of the Global Infrastructure Group Carl Grieser PJM 500 – Project Management Colorado State University – Global Campus Dr. Chiji Ohayia February 28th, 2016 Proposal and Analysis of the Global Infrastructure Group Introduction The Global Infrastructure Group, a subsidiary of the Global Financial Corporation, is an international conglomerate specializing in developing technologies and solutions for the Global Financial Corporation. This proposal for the Global Infrastructure Group will advise on what requirements the organization can best implement for a comprehensive project management system that can be used in a global organization that has small-, medium-, and large-scale projects. This proposal will address the following: The principal components of a project management system for a large-scale organization. These components will include: •Project Selection •Prioritizing Projects •Project Organization •Program Management •Planning and Scheduling •Estimating Cost •Monitoring and Controlling •Communication, Metrics, and Project Updates •Risk Management •Role of Information Technology Recommendations will include how Global Infrastructure Group can use project management principles to meet their goal of improving efficiency and empowering management to make better and informed decisions through the use of processes, tools, and standards in completing projects. Additionally, this proposal will discuss how an effective project management...
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...into one of the most profitable industries, especially centered on telecommunication. The United States of America is one of the most technologically advanced countries in the world. The United States mobile market continued to grow and updates its quality and service to the customer. T mobile and AT & T are the top two successful mobile companies that provide telecommunication service to the users. In the following paper will analyze how the company attempt to make profit from rising consumer demand after the crash. It will evaluate the change in consumer demand trends after the crash for T mobile and AT &T. The paper will discuss at least two strategies that multinational corporations can undertake in order to make profit by leveraging the growing consumer demand. Companies that attempted to make profit from rising consumer demand after the crash. How they attempted to make a profit after the crash and discuss any unethical practices. T-Mobile USA and AT&T provide mobile wireless communication services. The Companies offer wireless services including digital voice, messaging, and high-speed wireless data services, as well as phones and accessories. The companies serve customers throughout the United States. T-Mobile USA, Inc. is a global marketing-information-services firm, ranked the company highest among major wireless carriers for retail-store satisfaction four years consecutively and highest for wireless customer care for the past two years consecutively...
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...(e-SCM) concept to newer dimensions. In the past, neither markets nor products changed much over time, enterprises that gained initial superiority could leverage on, considerable resources and process knowledge, mature distribution channels, advertising and marketing clout, and the newest technologies, to maintain that lead. Today, it is evident that there is no such thing as sustainable competitive advantage and also that all advantages are temporary. The cause for the rapid acceleration in the erosion of competitive advantage in almost all the businesses can be traced back to the rapidly developing newer technologies. Still more deadly is the sudden growth of newer business models that have been quick in challenging the present leaders by leveraging on special competencies which permit them to invade the market and conquer the targeted customer segments better. This paper conducts an extensive literature review to identify the latest trends in e-SCM. It also attempts to study some of the issues associated with e-SCM along with their solutions and practices. Keywords: e-Supply...
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...E-commerce in China:Taobao Group SIX The report on an E-commerce company-Taobao, researching on its web-pages, operates strategies, products and business model. Assessing its success in China on-line trading market and proposing business strategies featuring IT that help improve its performance. By Xiaochen,Li; Bingtian,Zhang; Tianshu,Lu; Hui,Niu; Yuguo,Hou; Lin,Zhu Table of Contents Introduction............................................................................................................................... .3 Taobao Information Systems Strategic Alignment .................................................................. 4 Business Strategies of Taobao’s E-commerce ........................................................................... 5 SWOT Analysis of Taobao......................................................................................................... 6 Payment security........................................................................................................................ 8 Credit Valuation ......................................................................................................................... 9 Credit Rating............................................................................................................................ 13 Decision Support Function of Taobao ..................................................................................... 16 Information Asymmetry in e-commerce...
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...| 53 | EPC Industry in India: Issues and Challenges EPC Report 4 Cover pages.indd 53 2/20/2011 8:19:18 PM Contents Chemtech Foreword KPMG Foreword Executive Summary Acronyms Used Methodology Coverage and Scope Setting the Context Value Creation Strategies Key External Drivers and Issues Key Internal Issues End-Use Industry Views EPC Industry in India Action Agenda for Sustained Growth Acknowledgements About Chemtech About KPMG in India 48 51 52 52 2 3 4 4 8 8 10 17 22 29 33 |1 | EPC Industry in India: Issues and Challenges EPC Report New.indd 1 2/20/2011 8:13:28 PM CHEMTECH Foreword trong infrastructure and industry are critical for India as the country sees leapfrogging growth. As far as both these sectors are concerned, India is in a sweet spot, which has created multitude of opportunities in the fields of engineering, capital goods and construction. S Though, India has witnessed significant investments in both industrial and infrastructure space, the growth has remained restricted due to various weaknesses of the Indian EPC industry and difficulties for the foreign players to ply in the market. Jasu Shah Founder & Chairman, CHEMTECH Foundation At this juncture, it is an imperative to address the challenges, which restrict the growth of this sector in India and will continue to repress industrial development lest addressed. CHEMTECH has made an attempt to address the issues faced by the EPC industry through each edition of its international...
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...------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ International Conference on Telecommunication Technology and Management (ICTTM 2015) April 11-12, 2015 ORGANIZED BY Bharti School of Telecommunication Technology and Management Indian Institute of Technology Delhi ACADEMIC PARTNERS Telecom Ecole de Management, France GSM Association (GSMA) PUBLICATION PARTNER SPONSORS 1 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ CONFERENCE SCHEDULE Day 1 (11th April, 2015) Registration (9:00 A.M. - 10:00 A.M.) Venue: Seminar Hall, IIT Delhi Inaugural Session (10:00 A.M. - 11:00 A.M.) Venue: Seminar Hall, IIT Delhi Networking High Tea (11:00 A.M.. - 11:30 A.M.) Panel Discussion (11:30 A.M. - 1:00 P.M.) Venue: Seminar Hall, IIT Delhi Lunch (1:00 P.M.- 2:00 P.M.) Venue: Cricket Ground, IIT Delhi Track 1 Venue: Room No 101, Ground Floor, Bharti School, IIT Delhi Session Coordinator: Ms. Shiksha Kushwah Session 1 Session 2 (2:00P.M. to 3:30 P.M.) (4:00P.M. to 6:00 P.M.) Session Chair(s) Session Chair(s) Prof. Sushil Prof. S. S. Yadav Prof. Kirankumar S. Momaya Dr. Sujata Joshi Track 2 Venue: Room No 106, Ground Floor, Bharti School, IIT Delhi Session Coordinator: Ms. Rojalin Pradhan ...
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...Executive Summary: Pfizer-Wyeth Merger Deal Overview: On January 25, 2009, Pfizer and Wyeth entered into the merger agreement, pursuant to which, subject to the terms and conditions set forth in the merger agreement, Wyeth will become a wholly-owned subsidiary of Pfizer. Upon completion of the merger, each share of Wyeth common stock issued and outstanding will be converted into the right to receive, subject to adjustment under limited circumstances, a combination of $33.00 in cash, without interest, and 0.985 of a share of Pfizer common stock in a taxable transaction. Pfizer will not issue more than 19.9% of its outstanding common stock at the acquisition date in connection with the merger. The exchange ratio of 0.985 of a share of Pfizer common stock will be adjusted if the exchange ratio would result in Pfizer issuing in excess of 19.9% of its outstanding common stock as a result of the merger Deal Terms Breakdown: Transaction Value Transaction Consideration Purchase price per WYE share $50.19 Existing Cash Used $22,213 32.7% Cash per WYE share $33.00 New Debt $22,500 33.1% PFE stock value per WYE share $17.19 Total Cash $44,713 65.8% PFE shares per WYE share 0.985 Stock Consideration $23,289 34.2% Premium to 1/23/09 WYE price 29.3% Total Consideration $67,303 100.0% Total WYE shares (MM,diluted) 1,341 Total Equity...
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