(1) What is the net cash flow from financing activity for 2014? (2) What is the total net increase in cash from 2013 to 2014?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
QUESTION 2
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Southeast Systems has the following
balance sheet and the income statement. The company had 10 million shares of common stock outstanding and its market price of the common stock was $78 at the end of 2014. Make sure the unit is in million dollars.(unit: $ in millions)
Southeast Systems
Balance Sheets
2013
2014
2013
2014
Cash
$50
$100
Accounts payable
$450
$500
Accounts receivable 600
700
Notes payable
300
400
Inventory
500
550
Long-term debt
650
650
Net fixed assets
1,000
1,000
Common equity
300
300
Retained earnings 450
500
Total Assets
$2,150
$2,350
Total Liabilities & Owner’s Equity
$2,150
$2,350
Income Statement
2014
Sales
$2,370
Cost of goods sold
2,070
Depreciation 200
EBIT
100
Interest expenses
20
Taxable income
80
Taxes
28
Net income
$52
Dividends
$2
(1) What is the net
cash flow from financing activity for 2014?(2) What is the total net increase in cash from 2013 to 2014?
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