Should stockholder wealth maximization be thought of as a long-term or a short-term goal? For example, if one action increases a firm’s stock price from a current level of $20 to $25 in 6 months and then to $30 in 5 years but another action keeps the stock at $20 for several years but then increases it to $40 in 5 years, which action would be better? Think of some specific corporate actions that have these general tendencies. Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios they focus on? Why might it be rational for a small firm that does not have access to the capital markets to use the payback method rather than the NPV method? A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $12 for B; and revenue per unit would be $15 for A and $16 for B. a).Determine each alternative’s break-even point in units. b).At what volume of output would the two alternatives yield the same profit? c).If expected annual demand is 12,000 units, which alternative would yield the higher profit? Resear Company sells modems. Resear desires to hold a finished goods inventory equal to 100% of the next month’s sales requirement of modems. The beginning finished goods inventory is 1,200 units. Forecasted unit sales for April and the next three months are as follows: April May June July 800 850 925 1,000 The production of one finished unit requires 5 pounds of raw material. The company desires to have a one-month supply of raw materials as the ending inventory for each month. The beginning inventory of raw materials is 6,190 pounds. Required: Prepare a direct materials purchases budget (in pounds) for April. Explain the advantages of encouraging employee participation in budget setting. Explain why zero based budgeting might be a useful tool to employ to ensure that budgetary requirements are kept up to date What are some pros and cons of holding high levels of current assets in relation to sales? Use the DuPont equation to help explain your answer. Is it possible to construct a portfolio of real-world stocks that has an expected return equal to the risk-free rate? Explain. Walter Industries has $5 billion in sales and $1.7 billion in fixed assets. Currently, the company’s fixed assets are operating at 90% of capacity. a.What level of sales could Walter Industries have obtained if it had been operating at full capacity? b.What is Walter’s Target fixed assets/Sales ratio? c.If Walter’s sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? What effect does the expected growth rate of a firm’s stock price (subsequent to issue) have on its ability to raise additional funds through (a) convertibles and (b) warrants? The cost of retained earnings is less than the cost of new outside equity capital. Consequently, it is totally irrational for a firm to sell a new issue of stock and to pay dividends during the same year. Discuss the meaning of those statements
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Should stockholder wealth maximization be thought of as a long-term or a short-term goal? For example, if one action increases a firm’s stock price from a current level of $20 to $25 in 6 months and then to $30 in 5 years but another action keeps the stock at $20 for several years but then increases it to $40 in 5 years, which action would be better? Think of some specific corporate actions that have these general tendencies.
Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios they focus on?
Why might it be rational for a small firm that does not have access to the capital markets to use the payback method rather than the
A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $12 for B; and revenue per unit would be $15 for A and $16 for B. a).Determine each alternative’s break-even point in units. b).At what volume of output would the two alternatives yield the same profit? c).If expected annual demand is 12,000 units, which alternative would yield the higher profit?
Resear Company sells modems. Resear desires to hold a finished goods inventory equal to 100% of the next month’s sales requirement of modems. The beginning finished goods inventory is 1,200 units.
Explain the advantages of encouraging employee participation in budget setting.
Explain why zero based budgeting might be a useful tool to employ to ensure that budgetary requirements are kept up to date
What are some pros and cons of holding high levels of current assets in relation to sales? Use the DuPont equation to help explain your answer.
Is it possible to construct a portfolio of real-world stocks that has an expected return equal to the risk-free rate? Explain.
Walter Industries has $5 billion in sales and $1.7 billion in fixed assets. Currently, the company’s fixed assets are operating at 90% of capacity. a.What level of sales could Walter Industries have obtained if it had been operating at full capacity? b.What is Walter’s Target fixed assets/Sales ratio? c.If Walter’s sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio?
What effect does the expected growth rate of a firm’s stock price (subsequent to issue) have on its ability to raise additional funds through (a) convertibles and (b) warrants?
The cost of
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
