i Which of the following statements is most FALSE? a. In general‚ as a firm begins to add debt to its capital structure‚ the firm’s EPS will improve‚ but the standard deviation of EPS will increase. b. Lower operating leverage generally permits a firm to use more debt in their capital structure. c. The capital structure that maximizes the firm’s stock price is also the capital structure that minimizes WACC. d. The more debt a firm has in its capital structure‚ the higher that firm’s financial
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CAPITAL MARKETS AND FINANCING SPR 13 | Group Assignment 1 | UST Case Study | 2/19/2013 | | | | Question 1: In order to calculate the impact of the leverage recapitalization on UST’s value‚ we used the WACC and APV methods to calculate its value before and after the recapitalization. WACC Method Using the WACC method‚ we first derived UST’s return on assets (rA). Since we are given the firm’s market capitalization‚ debt and cash‚ we calculated the current Enterprive Value
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DOL AND DFL COMPARISION Operating leverage is concerned with the relationship between the firm’s sales revenue and its earnings before interest and taxes (EBIT) Financial Leverage is concerned with the relationship between the firm’s (EBIT) and its common stock earnings per share (EPS) DOL |Company /year |2010 |2009 |2008 |2007 | |ntpc |1.12 |-0.44 |0.87
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AMERICAN UNIVERSITY Corporate international diversification theory posits that multinational corporations (MNCs) should have lower risk and higherfinancial leverage than purely domestic corporations (DCs). We suggest an alternative upstream-downstreamhy- pothesis according to which the overall effect of internationalization on the risk and leverage of MNCs is expected to vary with home and target market conditions. The empirical results are consistent with the suggested hypothesis. porations (DCs)
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Debt Policy at UST Inc. Submitted By: Group O Manan Chandna (2012PGP068) Mohammad Sohail (2012PGP069) Priyankar Pandit (2012PGP081) Sayar Banerji (2012PGP090) Shruthi Kulkarni (2012PGP093) Shupriya Singh (2012PGP094) V. M. Sai Murali (2012PGP106) Q1) Evaluate the business risks of UST from the viewpoint of a credit analyst / potential bondholder. Conclude by rating the overall business risk of UST The factors that have an impact on the company’s business risk are very high single product
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Rivoli Company has no debt outstanding‚ and its financial position is given by the following data: a. What effect would this use of leverage be on the value of the firm? Original value of the firm: V= D + S = 0 + ($15)(200‚000) = $3‚000‚000 Original cost of capital: WACC = wd(1-T)rd + wsrs = 0 + (1.0)(10%) = 10% With financial leverage (wd = 30%): WACC = wd(1-T)rd + wsrs = (0.3)(7%)(1-0.40) + (0.70)(11%) = 8.96% Since the growth is zero‚ the value
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breaking it into three main components: profit margin‚ asset turnover and leverage factor. By breaking the ROE into distinct parts‚ investors can examine how effectively a company is using equity‚ since poorly performing components will drag down the overall figure. To calculate a firm’s ROE through Du Pont analysis‚ multiply the profit margin (net income divided by sales)‚ asset turnover (sales divided by assets) and leverage factor (total assets divided by shareholders’ equity) together. The higher
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involved in determining the appropriate capital structure‚ especially as it applies to enterprise and equity valuation; 2) analyzing the impact of the leverage on the weighted average cost of capital of the firm. You might find Chapters 3‚ 4‚ 7‚ 12 and 14-16 of our text useful. Possible concepts used: EFN‚ growth rates‚ financial ratios‚ financial leverage‚ MM propositions and tradeoff theory‚ pecking order theory‚ agency cost theory‚ share repurchase‚ special cash dividends‚ enterprise value‚ debt and
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gain? 15% = 3750 / 25000 4. If the price decreases to $17‚ what would be the absolute and percentage loss? 1250 x (17-20) = -$3750 ; -3750 / 25000 = -15% B. Margin Purchase 1. How many shares of GW could she purchase on margin using the maximum leverage? 2500 = 25000/ .50 / 20 2. If the price increases to $23 what would be her absolute gain? $7500 = 2500 shares x (23-20) 3. If the price increases to $23 what would be her percentage gain? 30% 7500 / 25000 4. If the price decreased to $17‚ what would
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81 1.00 0.88 0.87 0.90 1.02 Leverage Ratio (debt/ equity) 1.98 1.84 1.97 1.98 1.80 0.75 Profitability (ROA) 8.86% 12.01% 11.54% 11.55% 12.30% 13.07% Profitability (ROE) 17.52% 22.16% 22.72% 22.92% 22.14% 22.90% Profitability (ROS) 7.21% 9.64% 9.48% 10.06% 9.91% 10.47% The liquidity ratio was slightly less than 1 in most years. It is not a good sign since Zara may not be able to use its current assets to cover its liabilities. The leverage ratio generally has a decreasing trend
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