probably overstates the problem (due to seasonally low 1st Quarter sales), coverage is nonetheless quite low. Clarkson is now approximately two-thirds debt financed, up from 30% in 1993. Liquidity is low: the company’s current ratio has fallen from 2.49 to 1.56, while its quick ratio has dropped from 1.27 to 0.59. Trade Discounts Not Advisable As Exhibit 4 shows, when Clarkson is able to take full advantage of trade discounts, profit increases, but much of the additional EBIT that would be realized is
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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 $23,639.97. Therefore when additional debt is taken on systematic risk and
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CHAPTER 15 Capital Structure: Basic Concepts Multiple Choice Questions: I. DEFINITIONS HOMEMADE LEVERAGE a 1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: a. homemade leverage. b. dividend recapture. c. the weighted average cost of capital. d. private debt placement. e. personal offset. Difficulty level: Easy MM PROPOSITION I b 2. The proposition that the value of the firm is independent of its capital
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Corporate Finance The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Nike finances its assets either through debt or with equity. WACC is the average of the costs of these types of financing, each of which is weighted by its proportionate use. By taking a weighted average in this way, we can determine how much interest a company owes for each dollar it finances
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INTRODUCTION Beverly Flax and Rick Rosenfield founded California Pizza Kitchen in 1985 in Beverly Hills, California. California Pizza Kitchen is a casual dining, full service restaurant concept that specializes in gourmet pizzas with unique topping combinations. At the end of the second quarter of 2007 they operated 213 locations in 28 states and in 6 foreign countries. The company derives its revenue from three sources: sales at company-owned restaurants, royalties from franchised restaurant
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Title: Financial Leverage Practice of Indian Communications Ltd.: Bane or boon Indian Communications Ltd. had been a zero debt company since start. Of late, shareholders of the company were pressurizing to include debt in the capital structure as shareholders competitor company were getting a higher yield on account of financial leverage. The shareholders’ movement from Indian Communications has resulted in decline in the market price of the company. The board of the company was under
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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 more likely
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Introduction: BEXIMCO Group is the largest private sector industrial conglomerate in Bangladesh engaged in diverse business areas. BEXIMCO comprises of five publicly listed companies and sixteen private companies. The Group turnover in 2008 was BDT 18.5 billion. BEXIMCO employs 35,000 people and has 230,000 shareholders. BEXIMCO’s shares constitute 4.84% of the market capitalization of DSE. History of BEXIMCO: Since independence Bangladesh has come a long way, and the Beximco Group of Companies
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In the Jet Copies Case Study, we are introduced to three college students: James, Ernie, and Terri. They have discovered that they have a possible solution to two separate problems that they face: the need to make money and the lack of adequate copy services near the university that they attend. The three students decide to open their own copy service but soon discovered that they may have acted too soon in their decision. The first obstacle they had was the initial purchase of equipment. Without
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“Expectancy Model” of employees’ motivation. Does this word performance means effectiveness, efficiency or productivity of things like less numbers of accidents, less absence or grievances? Effectiveness is the achievement of objectives, efficiency is the ratio of output to input in terms of money or effort. Productivity is again number of items produced. But there are jobs where all these factors are not explicit or quantifiable. For example, a supervisor who is a task- master may get better productivity
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