realizing Diageo’s goal of becoming a market leader in the industry. The company’s capital structure strategy was crucially important in terms of credit rating and predicting financial distress, and the company intended to maintain the highest rating possible to keep debt maintenance costs down. Ultimately, the company conducted a Monte Carlo Analysis to analyze the trade-off of restructuring the company’s capital structure. 2) Corporations routinely face decisions regarding new investments and must
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need to plan to ensure that enough funding is available at the right time to meet the needs of the organisation for short, medium and long-term capital. a) b) 1.3. In the short-term, funds may be needed to pay for purchases of inventory, or to smooth out changes in receivables, payables and cash: the financial manager is here ensuring that working capital requirements are met. In the medium or long term, the organisation may have planned purchase of fixed assets such as plant and equipment, for
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the breakeven point? Illustrate with a graph. Financial risk is the additional risk placed on common stock holders as a result of the decision to finance with debt. EXAMPLE - Start a business with start up capital of $200,000. (All Equity) Scenario 1 (Capital Structure) EBIT $50,000 Debt 0 Taxes (40%) 20,000 Equity $200,000 Net Income $30,000 ROE = $30,000/$200,000 = 15% SCENARIO 2 - $100,000 DEBT
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and Share Repurchases Answers to End-of-Chapter Questions 15-1 The biggest advantage of having an announced dividend policy is that it would reduce investor uncertainty, and reductions in uncertainty are generally associated with lower capital costs and higher stock prices, other things being equal. The disadvantage is that such a policy might decrease corporate flexibility. However, the announced policy would possibly include elements of flexibility. On balance, it would appear desirable
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Problem Sheet # 9 Unit 9 – Cost of Capital 1. What is the company’s cost of equity capital if CCC’s common stock has a beta of 1.2, a risk-free rate of 4.5 percent and the expected return on the market is 13 percent? 2. The total market value for Disney was $60M at the start of this year. During the year Disney plans to raise and invest $30M in new projects. The company’s present market value capital structure, shown below is considered to be optimal. Assume that there is no short-term debt
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Assignments from the Readings Steven G. Staples Jr. FIN/419 May 3, 2012 James Karakos Chapter 4 P4-2 Future value calculation Without referring to the preprogrammed function on your Financial calculator or to tables, use the basic formula for future value along with The given interest rate, i, and the number of periods, n, to calculate the future value Interest factor in each of the cases shown in the following table. Compare the calculated value to the value in Appendix Table A–1.
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3-4) * Anticipated effect of changing the capital structure on return on equity (p.4) * Anticipated effect of changing the capital structure on cost of capital (p.5) * Expected number of shares of CPK that can be repurchased (p.6-7) * Anticipated effect of changing the capital structure on CPK’s stock price (p.6-7) * Our recommendation (p.7) In order to explore whether or not California Pizza Kitchen should change their capital structure, we must first look at the brief history
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provides an opportunity to get some hands-on experience applying investment theory and models to real firms. In the process, participants will get a chance to: evaluate the risk profile of a firm and examine the sources of risk; analyze its capital structure and decide whether the firm is under- or over-leveraged; examine its dividend policy and decide whether the firm is under- or over-leveraged; and value the firm. How is the project structured? This is a project requiring by individual analysis
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involved in many projects in different industries. The key projects includes; Capital restructuring: Leading Telecom Company in the Middle East Assists the client in setting the optimal capital structure that improvers the business. Researched listed telecom companies to benchmark the existing capital structure of the client. Made the presentations pack which was used at the board meeting for approval of the new capital structure. Valuation: Bottled water Company Valuation assignment based on discounted
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Financial Management Capital Structure 1 Capital Structure This lecture will explore the determinants of the mix of debt and equity the firm uses to finance its operations. • We will first explore the situations under which capital structure is irrelevant to a firms operations. Examining these situations will allow us to explore how the following factors influence the mix of debt and equity a firm uses to finance its operations. • TAXES • RISK • FINANCIAL SLACK • ASSET CHARACTERISTICS • COSTS
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