3)Attempting to remedy the situation, the firm cut its dividend in 1974 and 1975 and drastically reduced its working capital investment they turned to debt financing. Du Pont's debt-to-equity ratio rose from a conservative 7% in 1972 to 27% in 1975 while the interest coverage ratio fell from 38 to 4.6. The increased debt ratio shows that they were moving towards a higher leveraged position and aggressively financing growth with debt. The reduced interest coverage indicates that Du Pont was now
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Market Microstructure Why People Trade (Harris Ch 8) 1. Traders often lose because they don’t know why they trade 2. Trading as zero-sum game – combined gains and losses = 0; if you buy & gain, seller missed opportunity to reap that same gain a. Futures b. Stocks 3. Types of traders a. Utilitarian traders- seek a benefit aside from trading profits i. Investors & borrowers – move money from one time period to another. Investors move it from present to the
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Problem 14-10 A. 1. 2011 Dividends = (1.10)(2010 Dividends) = (1.10)($3,600,000) = $3,960,000 2. 2010 Payout = $3,600,000/$10,800,000 = 0.33 = 33% 2011 Dividends = (0.33)(2011 Net income) = (0.33)($14,400,000) = $4,800,000 (Note: If the payout ratio is rounded off to 33%, 2011 dividends are then calculated as $4,752,000.) 3. Equity financing = $8,400,000(0.60) = $5,040,000 2011 Dividends = Net income - Equity financing = $14,400,000 - $5,040,000 = $9,360,000 All of
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Many factors affect ones decision when choosing to purchase a home. The decision to purchase a home will have long-term effects. Although when the economy is down purchasing a home is not a good decision financially. In a situation with a slumping economy a long term consequence will cause financial distress down the road. Therefore, purchasing a home will clearly have an impact on the economy. The Federal Reserve decides the rise and fall of interest rates. If interest rates decrease, more money
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FI515_Homework1_Alyssa Davis Mini Case (pg. 45) a) Corporate finance is important to all managers because managers should understand and know the financial state of the company they are working for. Managers have a responsibility to capitalize on the value of a company for the shareholders of an organization. The decisions that will be made on a regular basis are all affected by this current financial state of a corporation. And if the managers don’t know this information then they cannot
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Valuation M&A involves using more than one valuation technique to arrive at a valuation that we think is fair. The most common techniques used are: ➢ Comparable Publicly traded companies (“Public Comps”) – this analysis indicates how the stock markets are valuing companies that are similar to the target ➢ Precedent Comparable Transaction analysis (“Transaction Comps”) – this analysis indicates the valuations at which prior M&A transactions have been done in the same industry as that
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The subject of finance in reference to the global perspective has changed through the years in response to a growing economy. The way our economy does business today is different from years ago when corporations were all industrial and had main concerns with mergers and acquisitions. Eventually finance began to center around being able to retain capital in regards to liquidity and how to help corporations from financial trouble, due to the Great Depression of the 1930s. This later lead to a more
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Overall Bond Market Outlook: The bond market generated a strong performance in 2011, with long-term U.S. Treasury bonds realizing double-digit returns. In general, higher-quality bonds outperformed riskier bonds as investors sought safe harbor in volatile markets. During the second half of 2011, both investment-grade and high-yield bonds have experienced rising yields, and underperformance relative to U.S. Treasuries, due to economic volatility in Europe. At the same time, however, the underlying
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Case #1- Stanford Financial R. Allen Stanford, a Texas financier and the founder of the Stanford financial Group, was arrested in June 2009 for a civil charge of conducting an $8 billion fraud by deceiving more than 20,000 investors. He cheated investors in a Ponzi scheme through bogus certificates of deposit at the Stanford International Bank located in Caribbean island of Antigua. Stanford International Bank promised investors substantially higher rates of return on their CDs than U.S. banks
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When we operate a business, maximizing company’s wealth is more suitable than maximizing its profit as a goal of the business, it is because maximizing profits relates to profits only, and it assumes away the problems such as uncertainty of returns and the timing of returns, while maximization of the market value of the owners’ equity has take into all the considerations of all the financial decisions, such as wealth for the long term; risk or uncertainty; the timing of returns; and the stockholders’
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