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
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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
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American Home Products Corp. How much financial risk would American Home Products face at each of the proposed debt levels shown in case Exhibit 3? What debt rating would American Home received at each of the proposed debt levels? Comparison Table $ in million USD | American Home Products Corp. | Warner. Lambert Company | | Actual | Pro Forma 1981 for | Actual | | 1981 | 30% Debt to Total Capital | 50% Debt to Total Capital | 70% Debt to Total Capital | 1980 | Net Worth | $1,472.8 |
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American Home Products Corporation INTRODUCTION The chief executive of American Home Products (AHP), William F. Laporte, is a man who is debt averse. Mr. Laporte is a man who does not like to spend money and his management style has produced outstanding financial success. However, Mr. Laporte will be retiring soon, which could mean AHP will have a new executive who may wish to change the capital structure by adding debt in order to increase shareholder wealth. At the time, AHP had practically
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the case, American Home Products (AHP) is a successful and a highly expanding company that produces a host of products in four separate business lines: prescription drugs, packages drugs, food products, and housewares and household products. The success of the company is mainly due to its outstanding marketing department. In fact, instead of investing money in research and development in order to create new and innovative products, the company prefers to avoid taking risks and market products that
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Case: American Home Products 1) What are the problems confronting the company? As it has been mentioned in the case, American Home Products (AHP) is a successful and a highly expanding company that produces a host of products in four separate business lines: prescription drugs, packages drugs, food products, and housewares and household products. The success of the company is mainly due to its outstanding marketing department. In fact, instead of investing money in research and development in
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C ase I: A merican Home Products Corporation Solutions to various questions 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
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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
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Evaluating Competitiveness Using Fuzzy Analytic Hierarchy Process - A Case Study of Chinese Airlines Abstract With the development of a national market economy, the Chinese aviation industry is now confronted with international competition. Therefore, it is necessary to research the competitive status of Chinese national aviation, as well as advice on how to enhance the competitiveness of the Chinese aviation industry. The main objective of this paper is to propose FAHP as an effective solution
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Nations of North America (Garreau, 1982), Latitudes and Attitudes: An Atlas of American Tastes, Trends, Politics and Passions (Weiss, 1994) and Mastering Global Markets: Strategies for Today’s Trade Globalist (Czinkota et al., 2003). When reflecting on the nature of markets, consumer behaviour and competitive activities, it is obvious that no product or service appeals to all consumers and even those who purchase the same product may do so for diverse reasons. The Coca Cola Company, for example, varies
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