studio cards The possibility of going to the market to raise additional equity capital in order to relieve pressure on its financial position Identification of Relevant Facts Friendly’s position in the industry As of early 1988, the main issues facing the greeting card industry were: Continued industry consolidation (a decline of 15% per decade since 1954) Cyclical revenues The presence of high fixed costs Threat of Industry Consolidation Since its inception in 1978, Friendly Cards
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cards The possibility of going to the market to raise additional equity capital in order to relieve pressure on its financial position Identification of Relevant Facts Friendly’s position in the industry As of early 1988, the main issues facing the greeting card industry were: Continued industry consolidation (a decline of 15% per decade since 1954) Cyclical revenues The presence of high fixed costs Threat of Industry Consolidation Since its inception in 1978
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deliberated in the financing decision; these include not only the capital market conditions but also the size and urgency of funding required as well as costs and availability of alternate sources of funds. Applying various theoretical hypotheses in conjunction with a comparative study using Peer Firms, the report finds the current debt/equity mix lies in the high range of estimated optimal values. The current structure does compensate for the current volatility by reducing exposure to debt markets
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in cost structure of large and small firms is also omitted and leads to wrong results. So the authors argue that such ratios have undesirable properties for examining the static trade-off theory. Conducting the research, the authors obtained the data from Compustat and CRSP. Frank and Goyal also state that using leverage ratios is not right, because it omits several features. They investigated the static trade-off model of capital structure using 2 regressions that explain debt and equity respectively
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Presently the company is at odds over whether they should use a company wide cut off rate based on the overall weighted average cost of capital or if Pioneer should use multiple rates that reflect risk-profit characteristics of the several businesses or economic sectors. At first we must decide if the methodology used in computing the company’s overall weighted average cost of capital is just. Second, we should decide in which terms Pioneer adheres to future investments. Should they adjust discount
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total value of the firm. Rosencrantz could buy one percent of Company B’s equity and borrow an amount equal to: 0.01 × (DA - DB) = 0.002V This investment requires a net cash outlay of (0.007V) and provides a net cash return of: (0.01 × Profits) – (0.003 × rf × V) where rf is the risk-free rate of interest on debt. Thus, the two investments are identical. b. Guildenstern could buy two percent of Company A’s equity and lend an amount equal to: 0.02 × (DA - DB) = 0.004V This investment
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budgeting techniques to ensure the company has the resources to invest in the project, and also helps management determine if the investment will help achieve the goals and objectives of the company. The goal of capital budgeting is to evaluate the costs of an investment to the initial capital to determine if the investment will generate more capital or cash flow for the company. The four capital budgeting techniques used by management are Net Present Value (NPV), Internal Rate of Return (IRR), Profitability
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growth in earnings from $98M in 2002 to $1.84B in 2011, due to improved operating margins (Appendix 1). The improvements in ROE and ROA have outpaced our competitors, implying that we are getting higher returns for each dollar invested in shareholder’s equity and assets. Although we have a more aggressive debt strategy, our D/E ratio never exceeded 50% from 2002 to 2011. Despite the slight 4% decrease in our cash and current ratios, their values are still well above one. We are still in a good financial
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additional debt is taken on. From my calculations debt effected the cost of equity and beta which in turn effected the value of the assets. When zero debt was held beta, cost of equity and the value of assets was .80, 10%, and $20,205. When the market ratio of debt and equity changes to 23% and 77% beta, cost of capital, and value of assets rose to .96, 11%, and $21,922. Finally when the ratio changed from 43% and 57% beta, cost of equity and the value of assets once again rose to 1.19, 12% and $23,639
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Capital Structure Stewart C. Myers The Journal of Economic Perspectives, Vol. 15, No. 2. (Spring, 2001), pp. 81-102. Stable URL: http://links.jstor.org/sici?sici=0895-3309%28200121%2915%3A2%3C81%3ACS%3E2.0.CO%3B2-D The Journal of Economic Perspectives is currently published by American Economic Association. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/about/terms.html. JSTOR's Terms and Conditions of Use provides
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