Caledonia: Financial Analysis Catrina Sweers BUS401: Principles of Finance Ramzi Salloum April 30, 2012 Caledonia: Financial Analysis Taking on a new project or having an expansion done on an already existing facility takes time. There are several factors that need to come into play, centering mainly on capital-budgeting. As an analysts this is their main job; they need to be able to formulate the cash-flows statement for the project while figuring in such factors as risk, and depreciation
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project’s net present value; or compare the project’s IRR with the cost of capital. In addition, we also know that the cost of capital a firm faces might not be constant (i.e. the firm’s MCC schedule might experience several break points). In that case, how does a firm decide what is the appropriate cost of capital? And how does it decide the optimal budget it needs for project investments? In order to answer those questions, we need to first look at a firm’s investment opportunity schedule (IOS)
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EBIT-EPS (or Indifference) Analysis: Different financing decisions will have differing impacts on EPS. We can examine the effects of various financing alternatives through an EPS-EBIT analysis, which involves determining the crossover or 'indifference' EBIT at which the EPS is the same between two financing alternatives. Suppose that the firm is comparing the two possible capital structures, 1 and 2. Then, EBIT*, the indifference EBIT, is such that [pic] [pic] where EBIT* =the indifference
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summing: Where: Re = cost of equity Rd = cost of debt E = market value of the firm's equity D = market value of the firm's debt V = E + D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate Businesses often discount cash flows at WACC to determine the Net Present Value (NPV) of a project, using the formula: NPV = Present Value (PV) of the Cash Flows discounted at WACC. Investopedia explains Weighted Average Cost Of
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cost of distress would be legal fees. The indirect costs cause NOPAT to decrease. This is caused by the loss of customers, in turn causing the net operating working capital to increase. The effect that the managers have (or their behavior in most cases) is also effected by additional debt to the company. Managers will be come less likely to spend or waste their Free Cash Flow on opportunities that might in fact add value, or not add value and even the lack of risk in involving the company in any
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benefits of implementing an electronic payment system. Lawrence Sports can also offer a higher discount on transactions for a limited period for using the electronic payment process. Cash budgeting may cause shockwaves to run through Lawrence Sports' finance department. In the instance management may determine money has been used inefficiently which could result in a change of personnel in the department. However, once management looks beyond the current situation and begins to examine the opportunities
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Timothy Hodges Finance 423 Hop In Foods Strategy Paper Hop in foods is a Virginia based convenient store like 7 eleven. Hop in foods have been acquiring stores and assets at a rate that will require additional working capital. The company also wants to reduce the level short term debt so they can borrow at a better rate should the need arise. Furthermore Hop In also wants to provide additional capital using an initial public offering equity funds. Hop in foods is also wants to determine
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Business 650, Managerial Finance Use of Real Options Theory Financial Management/Modeling I April 18, 2011nstructor: Abstract At a previous employment environment, the president of the corporation acted on a whim, rather than, conducting a series of testing for his expansion to go into other businesses ventures. Within a few short months, the plan was abandoned for lack of profitability. As an employee, I thought of this as a failure on the owner’s part. However, the Real Options Theory
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Defining Defining Financial Terms 1. Finance – a discipline that explains the ability to manage money, credit banking, assets and investments. Finance looks at money and anything that is related to money in the market. The purpose of finance is to aid any company with an ability to manage money. 2. Efficient Market – the level in where the stock prices will reflect all of the available and significant information. The three different levels of market efficiency are ; weak, semi-strong, and strong
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FAIRNESS OPINIONS IN MERGERS AND ACQUISITIONS Anil K. Makhija* The Ohio State University Rajesh P. Narayanan Ohio University April 11, 2007 ____________________________________________________________ __________________ Abstract Fairness opinions provided by investment banks advising on mergers and acquisitions have been criticized for being conflicted in aiding bankers further their goal of completing the deal as opposed to aiding boards (and shareholders) by providing an honest appraisal
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