Acc557 week 9 discussion

As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting growth model helps a firm assess how rapidly it can grow, while maintaining a balance between its cash outflows (increases in noncash assets) and inflows (funds resulting from increases in liabilities or equity).   Consider this case: Green Caterpillar Garden Supplies Inc. has no debt in its capital structure and has $150 million in assets. Its sales revenues last year were $75 million with a net income of $5 million. The company distributed $1.60 million as dividends to its shareholders last year.   What is the firm’s self-supporting, growth rate? (Note: Do not round your intermediate calculations.) 1.08%   2.32%   4.60%   1.00%     Which of the following are assumptions of the self-supporting growth model? Check all that apply.   The firm’s total asset turnover ratio remains constant.   The firm pays no dividends.   The firm’s liabilities…

Hi-Lo Corporation is a publicly traded manufacturing company with a global presence. The company produces a range of consumer electronics and has a history of meeting or exceeding earnings expectations. The current financial year has been challenging due to increased competition, rising production costs, and fluctuations in currency exchange rates. Earnings Pressures and Executive Incentives 1. Earnings Expectations: As the end of the fiscal year approaches, High-Lo Corporation is facing pressure to meet market expectations for earnings per share (EPS). Analysts and investors have set high expectations for the company based on previous years' performance. 2. Executive Compensation Structure: The executive compensation structure at High-Lo Corporation includes significant bonuses tied to achieving specific financial targets, including meeting or exceeding earnings projections. Executives, including the CFO and CEO, are aware that their bonuses are directly linked to the reported…

As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting, or sustainable, growth model helps a firm assess how rapidly it can grow, while maintaining a balance between its cash outflows (increases in noncash assets) and inflows (funds resulting from increases in liabilities or equity).   Consider the following case of Cold Duck Manufacturing Inc.:   Cold Duck Manufacturing Inc. has no debt in its capital structure and has $300,000,000 in assets. Its sales revenues last year were $210,000,000 with a net income of $7,000,000. The company distributed $155,000 as dividends to its shareholders last year.   Given the information above, what is Cold Duck Manufacturing Inc.’s sustainable growth rate?   0.05%   2.33%   3.91%   0.51%     Which of the following are assumptions of the sustainable (self-supporting) growth model? Check all that apply. The firm pays out a constant proportion of its earnings as dividends.…

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Which of the following are assumptions of the sustainable (self-supporting) growth model? Check all that apply. The firm maintains a constant ratio of assets to equity. The firm uses all equity and no debt financing. The firm's total asset turnover ratio remains constant. The firm must issue the same number of new common shares that it issued last year.

This problem introduces the concept of “sustainable dividends”: The firm whose financials are illustrated below wishes to maintain cash balances of 80 over the next 5 years. It also desires to issue neither additional stock nor make any changes in its current level of debt. This means that dividends are the plug in the balance sheet. Model this situation (note that for some parameter levels you may get “negative dividends,” indicating that there is no sustainable level of dividends).

As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company’s stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $1.92 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 12.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 2.40% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Value Dividends one year from now (D₁)      Horizon value (Pˆ1P̂1)      Intrinsic value of Portman’s stock        The risk-free rate (rRFrRF) is 3.00%, the market risk…

Perry Coporations achieved great investment success, even though the value of assets under management grew rapidly. With an initial investment of $1 million, it currently has a value of $ 15.3 million. They currently have 1 million shares outstanding. Perry Corporation is reported to be one of the best electronics companies in the world by Forbes. Since this news, the company's stock price has increased from $ 16 to $ 20 per share. a. What kind of phenomenon happened to Perry Corporation's stock? b. What can a rational investor do to take an arbitrage opportunity?

As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $2.40 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 4.00% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Dividends one year from now (D₁) Horizon value (P₁) Intrinsic value of Portman's stock The risk-free rate (TRF) IS 5.00%, the market risk premium (RPM) is 6.00 %, and Portman's beta is 1.30. What…

As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $1.68 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 4.00% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Dividends one year from now (D1) Horizon value (P₁) Intrinsic value of Portman's stock Value

Blanket Company has paid quarterly dividends every quarter for the past 15 years. Lately, slowing sales have created a cash crunch for the company. While the company still has positive retained earnings, the retained earnings balance is close to zero. Should the company borrow to continue to pay dividends? Why or why not? a. Yes – discontinuing a previously regular dividend is very bad for public relations. b. Yes – best to keep stockholders happy and prevent a sell-off. c. No – borrowing will involve interest expense and will have to be repaid. d. No – it is illegal to pay a dividend that makes retained earnings negative.

As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company’s stock.   Consider the case of Portman Industries:   Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year.

A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?   a. The company's profit margin increases.     b. The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.     c. The company increases its dividend payout ratio.     d. The company decides to stop taking discounts on purchased materials.     e. The company begins to pay employees monthly rather than weekly.

What lessons can be learned from Jim Picariello’s agreement with the high-net-worth individual, who agreed to invest $1 million in Wise Acre Frozen Treats and then reneged on the agreement when the economy turned sour? Why is it that a company can grow too fast? If Wise Acre Frozen Treats significantly increased its sales, why wouldn’t its increased income provide more than enough cash to even out its cash flow?

Ivanhoe Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Ivanhoe has had a policy of investing idle cash in equity securities. In particular, Ivanhoe has made periodic investments in the company’s principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Ivanhoe does not have significant influence over the operations of Norton Industries.Cheryl Thomas has recently joined Ivanhoe as assistant controller, and her first assignment is to prepare the 2020 year-end adjusting entries for the accounts that are valued by the “fair value” rule for financial reporting purposes. Thomas has gathered the following information about…

Although its own operations have shown no growth over the past decade, Hammerworks Inc. has built up a significant cash balance ($2.9 billion) in anticipation of a collapse in equity prices which it believes will create opportunities for valuable acquisitions.  Following just such a correction, two potential targets are now being considered:  Metallion has a current market capitalization of $1.1 billion, $550 million in 6% debt (YTM also 6%), and generates EBIT of $175 million annually with no growth (a 7.1% profit margin on annual sales of $1.4 billion).  Goblikon has an enterprise value of $1.3 billion, a market valued D/E of 1.1, and has been growing its profits at 4% for the past several years (it currently has a P/E ratio of 10).  In either case, Hammerworks would be expected to pay off the target’s bond holders in full as there is a change of control clause in their bond indentures.  Since either acquisition would be paid for with cash, the firm expects that either acquisition…

Although its own operations have shown no growth over the past decade, Hammerworks Inc. has built up a significant cash balance ($2.9 billion) in anticipation of a collapse in equity prices which it believes will create opportunities for valuable acquisitions.  Following just such a correction, two potential targets are now being considered:  Metallion has a current market capitalization of $1.1 billion, $550 million in 6% debt (YTM also 6%), and generates EBIT of $175 million annually with no growth (a 7.1% profit margin on annual sales of $1.4 billion).  Goblikon has an enterprise value of $1.3 billion, a market valued D/E of 1.1, and has been growing its profits at 4% for the past several years (it currently has a P/E ratio of 10).  In either case, Hammerworks would be expected to pay off the target’s bond holders in full as there is a change of control clause in their bond indentures.  Since either acquisition would be paid for with cash, the firm expects that either acquisition…