You are an investor in Borrow-Happy Ltd., which has a debt-equity ratio of 3:1.Though you have had a good experience thus far, you are influenced by anexpert's advice published in media and decide to move your investment to a firmcalled Equity-Safe Inc. which is completely equity financed. You will do thisby selling off your shares worth $35,000 and use the sales proceeds to partlyfinance your share purchase in the new firm. If you wish to retain the sameearnings that you enjoyed with Borrow-Happy Ltd. how many dollars' worth ofshares you will need to buy in Equity-Safe Inc.? Provide supporting computationsto your response.

To determine the amount of shares you need to buy in Equity-Safe Inc. to retain the same earnings as…

Answered: You are an investor in Borrow-Happy…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mr. Carlos recently inherited a stock portfolio from his uncle. Wishing to learn more about the companies in which he is now invested, Mr. Carlos performs a ratio analysis on each one and decides to compare them to each other. Some of his ratios are listed below: Ratio Island Electric Utility Burger Heaven Fink Software Roland Motors Current ratio 1.10 1.3 6.8 4.5 Quick ratio 0.90 0.82 5.2 3.7 Debt ratio 0.68 0.46 0.0 0.35 Net profit margin 6.2% 14.3% 28.5% 8.4% Assuming that his uncle was a wise investor who assembled the portfolio with care, Robert finds the wide differences in these ratios confusing. Help him out, answering the following: What problems might Robert encounter in comparing these companies to one another on the basis of their ratios? Why might the current and quick ratios for the electric utility and the fast food stock be so much lower than the same ratios for other companies? Why might it…
2. An analyst for Acme, R. Runner, has recommended that Peter the Anteater purchase shares in a private firm (a firm that is not traded on any exchange) called Dynamite Corp. Dynamite has 30% debt and 70% equity. R. Runner believes that Dynamite will generate a return of 10% over the next year. Since Y. Lee is new to the job, he decides to do a little research on his own. He finds a company, Explosions Unlimited, that has very similar business as Dynamite. Explosions has an equity beta of 1.05 and is composed of 40% debt and 60% equity. Should Peter the Anteater buy the stock? The expected return on the market is 12% and the expected risk-free rate is 5%.
The analysis that we have to provide is as follows: Review the specifics of the IPO, including underwriting spread and other expenses. Consider the concept of underpricing and a higher than normal first day spike in stock price. What does this mean for the issuing company? What does this mean for the underwriter? The Mini Case we have to go off of is: Mutt.Com was founded in 2015 by two graduates of the University of Wisconsin with help from Georgina Sloberg, who had built up an enviable reputation for backing new start-up businesses. Mutt.Com's user-friendly system was designed to find buyers for unwanted pets. Within 3 years, the company was generating revenues of $3.4 million a year and, despite racking up sizable losses, was regarded by investors as one of the hottest new e-commerce businesses. Therefore, the news that the company was preparing to go public generated considerable excitement. The company's entire equity capital of 1.5 million shares was owned by the two founders…
After learning how to value a stock in his Corporate Finance class, Mark Stark decided to put his knowledge into practice and use the constant growth rate model to value El Tomate Feliz Co. He found that the company was severely undervalued. The stock was trading at $50 per share, but he valued it at $120 per share. Mark complained: “I thought that El Tomate Feliz was a steal and bought as many shares as I could, but the price didn’t go up. I have waited a year, and the price has not changed that much.” Lower necessary rate of return - Mark would have estimated his cost of equity or required rate of return at lower levels, resulting in better intrinsic values as a result of the lower discount rate. What does this mean,” …Mark would have estimated his cost of equity or required rate of return at lower levels"
You have started a company and are in luck—a venture capitalist has offered to invest. You own 100% of the company with 4.56 million shares. The VC offers $1.03 million for 820,000 new shares. b. What is the post-money valuation? c. What fraction of the firm will you own after the investment?
Help Save & Ex Chee Ethelbert.com is a young software company owned by two entrepreneurs. It currently needs to raise $918,400 to support its expansion plans. A venture capitalist is prepared to provide the cash in return for a 40% holding in the company. Under the plans for the investment, the VC will hold 16,400 shares in the company and the two entrepreneurs will have combined holdings of 24,600 shares. a. What is the total after-the-money valuation of the firm? (Enter your answer in dollars not millions.) Valuation of the firm b. What value is the venture capitalist placing on each share? Value of each share < Prev 2 of 8 Next m arch hp 寻
You have been hired as a financial consultant by Himalaya Ltd. The CEO, Ms. Natasha Romanoff has just returned from a conference of top managers, held at a prestigious University in Australia where the issue of share buy-backs, dividends, and earnings per share (EPS) were debated. She was particularly puzzled after hearing the quote below: Share buybacks (repurchases) are going into the market and pumping up the price of your shares by using your own cash, not to invest in business. - (Elizabeth Warren, U.S. Senator,2021)Required:In light of the above statement write a short memorandum format report to the CEO, Natasha Romanoff to answer the following four questions raised by Ms. Romanoff.i. Discuss what dividends, EPS and share buybacks are?ii. Discuss at least TWO reasons why companies pay dividends to shareholders?iii. Based on the statement above by Elizabeth Warren (U.S. Senator) criticallyevaluate why companies may consider buying back its own shares. iv. Discuss at least TWO…

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