good. Our working capital, inventory turnover, return on assets, and so forth are all strong. This will be important, because in order to expand, the company’s going to have to raise capital. And the bankers and potential investors are going to need to see those strong financial indicators. The board hasn’t decided yet how much of our new capital needs should be debt and how much should be in stock. I’m sure they’ll keep a close eye on the debt-equity ratio.” When asked where Contemporary
Words: 14740 - Pages: 59
is the constant cost of equity for that company. is the value of the next year's dividends. There is no reason to use a calculation of next year's dividend using the current dividend and the growth rate, when management commonly disclose the future year's dividend and websites post it. Contents[hide] * 1 Derivation of equation * 2 Income plus capital gains equals total return * 3 Growth cannot exceed cost of equity * 4 Some properties of the model * 5 Problems with the model * 6 References
Words: 564 - Pages: 3
information on its 2009 income statement: sales $ 196,000; costs $ 104,000; other expenses $ 6,800; depreciation expense $ 9,100; interest expense $ 14,800; taxes $ 21,455; dividends $ 10,400. In addition, you’re told that the firm issued $ 5,700 in new equity during 2009 and redeemed $ 7,300 in outstanding long- term debt. a. What is the 2009 operating cash flow? b. What is the 2009 cash flow to creditors? c. What is the 2009 cash flow to stockholders? To find the OCF, we first
Words: 2438 - Pages: 10
analysis is a useful tool for the business owner too. How healthy is your business? Some basic ratio analysis will tell the story. Calculating these three financial ratios will let you check your business’s current temperature, diagnose potential problems, and see if your business is doing better or worse over time. 1) Current ratio The current ratio is an excellent diagnostic tool as it measures whether or not your business has enough resources to pay its bills over the next 12 months. The
Words: 2232 - Pages: 9
Fourth Edition Financial Statement Analysis & Valuation Peter D. Easton University of Notre Dame Mary Lea McAnally Texas A&M University Gregory A. Sommers Southern Methodist University Xiao-Jun Zhang University of California, Berkeley Cambridge Business Publishers To my daughters, Joanne and Stacey —PDE To my husband Brittan, and my children Loic, Maclean, Quinn and Kay —MLM To my wife Susan, and my children Christian, Peter and Philip —GAS To my wife
Words: 28387 - Pages: 114
Chapter 910 The Cost of Capital ANSWERS TO END-OF-CHAPTER QUESTIONS 910-1 a. The weighted average cost of capital, WACC, is the weighted average of the after-tax component costs of capital—-debt, preferred stock, and common equity. Each weighting factor is the proportion of that type of capital in the optimal, or target, capital structure. The after-tax cost of debt, rd(1 - T), is the relevant cost to the firm of new debt financing. Since interest is deductible from taxable income
Words: 4981 - Pages: 20
FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS By Evanti Firstadea (105020307121003) Rosyida Mardyana (105020307121011) University of Brawijaya Economics and Business Faculty Accounting Major FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS INTRODUCTION The primary objective of for-profit organizations is to maximize shareholder (or owner) value, or firm value for short. Thus, the results-control ideal would be to reward each individual employee for doing what s/he does to increase
Words: 7223 - Pages: 29
Value Added NOPAT = Net operating Profit After Tax c* = Cost of Capital CAPITAL = Economic book value of the capital employed in the firm r = Return on capital = NOPAT / CAPITAL The goal of Financial Management is to maximize the shareholders’ value. The shareholders’ wealth is measured by the returns they receive on their investment. Returns are in two parts, first in the form of dividends and the second in the form of capital appreciation reflected in market value shares, of which market
Words: 1984 - Pages: 8
average of the firm’s costs of equity, preferred stock, and after tax debt is the: a. reward to risk ratio for the firm. b. expected capital gains yield for the stock. c. expected capital gains yield for the firm. d. portfolio beta for the firm. e. weighted average cost of capital (WACC). Difficulty level: Easy CAPM b 2. If the CAPM is used to estimate the cost of equity capital, the expected excess market return is equal to the: a. return on the stock minus the risk-free
Words: 3901 - Pages: 16
selected, compensated, and controlled private equity fund managers? What explains the differences between their strategy in private equity with that in other asset classes (e.g., real estate)? As for private equity asset allocation the Investment Office focused on finding external "value-added investors" with the sterling capability to build better businesses not only financially but mainly operationally. They believed this strategy led to enhancing returns independently of the market downturns. Thus
Words: 1761 - Pages: 8
