This document discusses capital budgeting and capital assets. It defines a capital asset as anything an organization acquires that will provide benefits for more than one fiscal year. It explains why organizations need a separate capital budget - to evaluate large capital expenditures over their full lifetime rather than just one year. The document uses an example of a hospital building a new wing to illustrate how a capital expenditure is amortized over the asset's useful life through annual depreciation expenses, rather than expensing the full cost in one year. It also discusses how capital assets are defined in theory versus practice, with organizations typically only treating higher-cost items with lifetimes over one year as capital assets.
Running head: Finance 1
Finance 2
Finance 5
Finance
Capital structure refers to how a company finances its general operations and expansion projection by utilizing various sources of funding. A company could normally have debt capital or equity as a composition of its capital structure (Bierman, H. 2003). Debt capital is usually composed of bonds issued or either, long term notes that are payable by the company whereas equity capital consists of shares (common stock) or retained earnings by the company. Furthermore, equity capital consists of common stock, preference stock and the retained earnings and these make up the total owners equity as recorded in the balance sheet. However, most analysts define the debt part in the capital structure as the long-term liability of the firm (Riahi-Belkaoui, A. 1999). The basic aim of optimizing capital structure is to select that proportion of various forms of debts and equities that maximizes the firm’s value while minimizing the average cost of capital. A firm should always yearn to optimize its capital structure because this will boost its effectiveness in the various operations in the market.
The balance sheet of a company is very key to any investor wishing to put an investment in a particular company and too to the managers in attempting to enhance shareholders wealth. In making this consideration, the health of the balance sheet is the front key to making this decision (Bierman, H. 2003). For instance, in making this evaluation, investors study keenly the working capital adequacy, the asset performance and lastly the capital structure. The fittest capital structure of a company is that which contains more of equity than the debt capital. A company having more of its capital derived from debts is not at all healthy in light of most investor’s analysis. This however is not consistent with the optimal view on capital structure. Ideally there is usually an optimum capital structure that is desirable for all companies. This optimal capital structure is that one that consists of a reasonable optimum amount of debt and also an optimum amount of equity. In practice though, there do not exist a magic ratio of particular leverage that the company can be able to have in its composition (Riahi-Belkaoui, A. 1999). This is also supported by the fact that the debt to equity ratio is different based on the type of industry in which a company is operating, its business type and also importantly the stage in the company’s life cycle.
The table below shows the capital structure of KONE’s business with a comparative analysis of ...
Introduction to Capital Budgeting Pamela Peterson, Florida S.docxnormanibarber20063
Introduction to Capital Budgeting
Pamela Peterson, Florida State University
O U T L I N E
I. Introduction
II. The investment problem
III. Capital budgeting
IV. Classifying investment projects
V. Cash flow from investments
VI. Operating cash flows
VII. Putting it all together
VIII. Practice problems and questions
I. Introduction
As long as a firm exists, it will invest in assets. Indeed, a firm invests in assets to continue to exist, and
moreover, to grow. By investing to grow, a firm is at the same time investing to maximize the owners'
wealth. To maximize the wealth of a firm's owners, its managers must regularly evaluate investment
opportunities and determine which ones provide a return commensurate with their risk. Let's look at
Firms A, B, and C, each having identical assets and investment opportunities, but that:
o Firm A's management does not take advantage of its investment opportunities and simply pays
all of its earnings to its owners;
o Firm B's management only makes those investments necessary to replace any deteriorating
plant and equipment, paying out any left-over earnings to its owners; and
o Firm C's management invests in all those opportunities that provide a return better than what
the owners could have earned had they had the same amount of invested funds to invest
themselves.
In the case of Firm A, the owners' investment in the firm is not what it could be as long as the firm has
investment opportunities that are better than those available to owners. By not even making investments
to replace deteriorating plant and equipment, Firm A will eventually shrink until it has no more assets.
In the case of Firm B, its management is not taking advantage of all profitable investments --
investments that provide a higher return than the return required by its owners. This means that there
are foregone opportunities and owners' wealth is not maximized.
But in the case of Firm C, management is making all profitable investments, maximizing owners'
wealth. Firm C will continue to grow as long as there are profitable investment opportunities and its
management takes advantage of them. And Firm C represents most large corporations: continually
making investments and growing over time.
II. The investment problem
Capital Investments
Firms continually invest funds in assets and these assets produce income and cash flows that the firm
can then either reinvest in more assets or pay to its owners. These assets represent the firm's capital.
1
Capital is the firm's total assets and is comprised of all tangible and intangible assets. These assets
include physical assets (such as land, buildings, equipment, and machinery), as well as assets that
represent property rights (such as accounts receivable, notes, stocks, and bonds). When we refer to
capital investment, we are referring to the firm's investment in its assets.
The term "capital" also has come to mean the fu.
Running head: Finance 1
Finance 2
Finance 5
Finance
Capital structure refers to how a company finances its general operations and expansion projection by utilizing various sources of funding. A company could normally have debt capital or equity as a composition of its capital structure (Bierman, H. 2003). Debt capital is usually composed of bonds issued or either, long term notes that are payable by the company whereas equity capital consists of shares (common stock) or retained earnings by the company. Furthermore, equity capital consists of common stock, preference stock and the retained earnings and these make up the total owners equity as recorded in the balance sheet. However, most analysts define the debt part in the capital structure as the long-term liability of the firm (Riahi-Belkaoui, A. 1999). The basic aim of optimizing capital structure is to select that proportion of various forms of debts and equities that maximizes the firm’s value while minimizing the average cost of capital. A firm should always yearn to optimize its capital structure because this will boost its effectiveness in the various operations in the market.
The balance sheet of a company is very key to any investor wishing to put an investment in a particular company and too to the managers in attempting to enhance shareholders wealth. In making this consideration, the health of the balance sheet is the front key to making this decision (Bierman, H. 2003). For instance, in making this evaluation, investors study keenly the working capital adequacy, the asset performance and lastly the capital structure. The fittest capital structure of a company is that which contains more of equity than the debt capital. A company having more of its capital derived from debts is not at all healthy in light of most investor’s analysis. This however is not consistent with the optimal view on capital structure. Ideally there is usually an optimum capital structure that is desirable for all companies. This optimal capital structure is that one that consists of a reasonable optimum amount of debt and also an optimum amount of equity. In practice though, there do not exist a magic ratio of particular leverage that the company can be able to have in its composition (Riahi-Belkaoui, A. 1999). This is also supported by the fact that the debt to equity ratio is different based on the type of industry in which a company is operating, its business type and also importantly the stage in the company’s life cycle.
The table below shows the capital structure of KONE’s business with a comparative analysis of ...
Introduction to Capital Budgeting Pamela Peterson, Florida S.docxnormanibarber20063
Introduction to Capital Budgeting
Pamela Peterson, Florida State University
O U T L I N E
I. Introduction
II. The investment problem
III. Capital budgeting
IV. Classifying investment projects
V. Cash flow from investments
VI. Operating cash flows
VII. Putting it all together
VIII. Practice problems and questions
I. Introduction
As long as a firm exists, it will invest in assets. Indeed, a firm invests in assets to continue to exist, and
moreover, to grow. By investing to grow, a firm is at the same time investing to maximize the owners'
wealth. To maximize the wealth of a firm's owners, its managers must regularly evaluate investment
opportunities and determine which ones provide a return commensurate with their risk. Let's look at
Firms A, B, and C, each having identical assets and investment opportunities, but that:
o Firm A's management does not take advantage of its investment opportunities and simply pays
all of its earnings to its owners;
o Firm B's management only makes those investments necessary to replace any deteriorating
plant and equipment, paying out any left-over earnings to its owners; and
o Firm C's management invests in all those opportunities that provide a return better than what
the owners could have earned had they had the same amount of invested funds to invest
themselves.
In the case of Firm A, the owners' investment in the firm is not what it could be as long as the firm has
investment opportunities that are better than those available to owners. By not even making investments
to replace deteriorating plant and equipment, Firm A will eventually shrink until it has no more assets.
In the case of Firm B, its management is not taking advantage of all profitable investments --
investments that provide a higher return than the return required by its owners. This means that there
are foregone opportunities and owners' wealth is not maximized.
But in the case of Firm C, management is making all profitable investments, maximizing owners'
wealth. Firm C will continue to grow as long as there are profitable investment opportunities and its
management takes advantage of them. And Firm C represents most large corporations: continually
making investments and growing over time.
II. The investment problem
Capital Investments
Firms continually invest funds in assets and these assets produce income and cash flows that the firm
can then either reinvest in more assets or pay to its owners. These assets represent the firm's capital.
1
Capital is the firm's total assets and is comprised of all tangible and intangible assets. These assets
include physical assets (such as land, buildings, equipment, and machinery), as well as assets that
represent property rights (such as accounts receivable, notes, stocks, and bonds). When we refer to
capital investment, we are referring to the firm's investment in its assets.
The term "capital" also has come to mean the fu.
Book pdf- Working capital management ( cost of capital and working capital)Tanjin Tamanna urmi
The termworking capitaloriginated with the old Yankee peddler who would load
up his wagon and go off to peddle his wares. The merchandise was called
“working capital”because it was what he actually sold, or“turned over,”to
produce his profits. The wagon and horse were his fixed assets. He generally
owned the horse and wagon (so they were financed with“equity”capital), but he
bought his merchandise on credit (that is, by borrowing from his supplier) or with
money borrowed from a bank. Those loans were calledworking capital loans,and
they had to be repaid after each trip to demonstrate that the peddler was solvent
and worthy of a new loan. Banks that followed this procedure were said to be
employing“sound banking practices.”The more trips the peddler took per year,
the faster his working capital turned over and the greater his profits
75 words as reply to this post if you cite also reference Dunca.docxpriestmanmable
75 words as reply to this post if you cite also reference
Duncan Moogi
Hello class and prof.
It is important for organizations to create accurate and up-to-date annual budgets to maintain control over their finances, and to show funders exactly how their money is being used. How specific and complex the actual budget document needs to be, depends on how large the budget is, how many funders you have and what their requirements are, how many different programs or activities you are using the money for, etc. At some level, however, the budget will need to include:
Projected expenses. The amount of money expected to be spent in the coming fiscal year, broken down into the categories expect to be covered - salaries, office expenses, etc. Projected income. The amount of money expected to be taken in for the coming fiscal year, broken down by sources -- i.e., the amount expected from each funding source, including not only grants and contracts, but also internal fundraising efforts, memberships, and sales of goods or services. The interaction of expenses and income. What gets funded from which sources? In many cases, this is a condition of the funding: a funder agrees to provide money for a specific position, for instance, or for activities or items. If funding comes with restrictions, it is important to build those restrictions into the budget, to make sure money is spend as told to the funder. Adjustments to reflect reality as the year goes on. The budget will likely begin with estimates, and as the year progresses, those estimates need to be adjusted to be as accurate as possible to keep track of what is really happening.
Why have a financial plan?
It sharpens understanding of goals. It gives the real picture - by accurately showing what you can afford and where the gaps in funding are, the budget allows to plan beforehand to meet needs, and to decide what is able to be done each year. It also encourages effective ways of dealing with money issues - by showing what you cannot afford with known income, a budget can motivate you to be creative - and successful - in seeking out other sources of funding. It fills the need for required information - the completed budget is a necessary element of funding proposals and reports to funders and the community. It facilitates discussion of the financial realities of the organization. It helps you avoid surprises and maintain fiscal control. (community toolbox n.d.)
According to Jason Gordon (20 December 2020), operating budget is the daily expenses that are projected from daily operations, including raw materials, machinery, labor, and utility expenses, among others. The company will generally use income projections when planning for an operating budget. Operating budgets are usually created before the start of a new financial year. They are often presented in an income statement format with a schedule that allows the management to provide updates of monthly expenses incurred. In addition,.
Long term decision-making for health and social care
Long term decision-making for health and social care
Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care
Defining investment:
A current commitment of £ for a period of time in order to derive future payments that will compensate for:
• the time the funds are committed
• the expected rate of inflation
• uncertainty of future flow of funds
Assignment
Marginal Revenue Product
Marginal revenue product is defined as the change in total revenue that results from the employment of an additional unit of a resource. A producer wishes to determine how the addition of pounds of plastic will affect its MRP and profits. See the table below, and answer each of the questions.
Pounds of plastic (quantity of resource)
Number of assemblies (total product)
Price of assemblies ($)
0
0
-
1
15
13
2
30
11
3
40
9
4
55
7
5
58
5
a. The marginal product of the 3rd pound of plastic is ________.
b. The marginal revenue product of the 3rd pound of plastic is ______.
c. The price of plastic is $135 per pound. To maximize profit, the producer should produce
__________________.
d. The price of plastic is $135 per pound. To maximize profit, the producer should buy and use:
________________.
Grading Criteria Assignments
Maximum Points
Meets or exceeds established assignment criteria
40
Demonstrates an understanding of lesson concepts
20
Clearly presents well-reasoned ideas and concepts
30
Uses proper mechanics, punctuation, sentence structure, and spelling
10
Total
100
Case Study
C&MDS, Inc.
Some time ago, at the beginning of 2010, an entrepreneur named Richard Alestar started a small business as a sole proprietor in Oregon - a business that manufactured sensors for cameras that could be used in motion detection systems. The business was very successful and he decided to incorporate in the latter part of 2011 under the name C&MDS, Incorporated. He wanted to name it Camera and Motion Detection Systems, but his marketing manager convinced him it was too difficult to remember. Alestar’s long-term plan was to obtain public funding to support growth anticipated in about 4-6 years. In the meantime, he hired electrical engineers and a solid management team capable of building an organization that would enable the company to eventually go public. He thought his proprietary sensors and equipment could not be duplicated for a number of years. There was only one competitor in the market niche where he competed that had a significant market share, but they were a follower, not a leader. Besides, he planned to grow the market himself, based on the increased focus and attention in the public arena on crime prevention, detection and surveillance using cameras with his sensors. He also was developing a host of other potential applications.
Alestar had developed a good relationship with his investment banker Sophia Pound, and had just begun discussions with respect to obtaining additional capital required to position the company to go public. These discussions also involved the chief financial officer (CFO), Mitch O. Dinero, who had brought up the issue of the appropriate capital structure (target capital structure) that C&MDS should consider. They both thought the current mix in the capital structure was close to optimal, and that only minor changes would be necessary. However, they would defer to the investment banke ...
FinanceTest ISummer 20191. Using the following data, prepare a .docxericn8
FinanceTest ISummer 2019
1. Using the following data, prepare a three-stage ROE decomposition (DuPont Analysis) for Home Depot.
Return on equity (ROE)
12%
Sales
$5,000
Current ratio
2.29
Dividend payout ratio
25%
Dividends paid
$100
Total liabilities
$4,000
Accounts payable
$600
My work:
1) ROE = Net Income/Sales x Sales/ Equity (or 12%)
2) ROE = Net Income/ Sales x Sales/Assets x Assets/Equity
or …….(400/5,000) (5,000/ Assets) (Assets/Equity)
3) ROE = (Net Profit Margin) (Asset Turnover) (Equity Multiple)
Side notes:
(Accounts Payable) (Current Ratio) = 1,374/ 600 = 2.29
Current assets = 1,374
Current Liability or Accounts payable = 600
Current ratio = 2.29
2. Your task is to update your firm’s long-term financial model (that was originally prepared last year). In financial modeling, a key assumption involves the firm’s dividend policy, as typically specified by the firm’s payout ratio.
You recognize many differences between today and last year.
Last year, the Treasury Yield Curve was upward sloping. Today, the Treasury Yield Curve is inverted. Last year, the Fed was expected to raise interest rates. Today, the Fed is expected to lower interest rates. We also know the following:
TodayLast year
Forward P/E
16
20
Equity Multiplier
2.50
1.95
Based on the differences described above, would you expect the payout ratio in this year’s financial model to be higher or lower than it was last year? Briefly explain.
Based on the differences above, I expect that the payout ratio in this year’s financial model to be lower along with short term headwinds. The earnings per share is going down and the price is taking a hit. Also, assets are leaning towards the heavier side.
3. Glencore will need to have $3,000 on June 20, 2023 (four years from now) to purchase new equipment. To accumulate this money, it will make four equal investments, with the first of the equal investments beginning one year from now.
a. If Glencore can earn an annual interest rate of 10%, how much must it invest per year?
My work:
P1 = 646.41 x 1.10
P2 = 646.41 x 1.10
P3 = 646.41 x 1.10
P4 = 646.41 x 1.10
Invest per year = $646.41
=PMT (10%,4,0,3000,0)
b. After presenting your findings from the above calculation, Glencore’s CFO asks you to consider an alternative scenario. Both changes are to occur today and will continue throughout the four years. You are to consider both changes simultaneously.
1. The interest rate will increase today and remain at that higher level.
2. There will still be four equal investments, but the first investment will occur immediately.
Without doing any calculations, how would these changes (considered simultaneously) affect your answer in part a? Using no more than 50 words, carefully justify your response. Do not write more 50 words.
My response:
With a higher rate (ex: 12%) Glencore’s money is working harder. If less money is put down, then more money will result in t.
Do.,.rY Y^.,^,o,,,!,u r-l hi okfu9could be conver.docxelinoraudley582231
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Y^:.,^,o",,",!,''u
r-l hi okfu9
could be convertible into 32 shares of stock). Coupon payments will be made annually. The
bonds will be noncallable for 5 years, after which they will be callable at a price of 91,090;
this call price would decline by $6 per year in Year 6 and each year thereafter. For
simplicity, assume that the bonds may be called or converted only at the end of a year,
immediately after the coupon and dividend payments. Management will call the bonds
when their conversion value exceeds 25o/o of thetr par value (not their call price).
a. For each year, caiculate (1) the anticipated stock price, (2) the anticipated conversion
value, (3) the anticipated straight-bond price, and (4) the cash flow to the investor
asstrming conversion occurs. At what year do you expect the bonds will be forced into
conversion with a call? What is the bond's value in conversion when it is converted at
this time? What is the cash flow to the bondholder when it is converted at this time?
(Hint: The cash flow includes the conversion value and the coupon payment, because
the conversion occurs immediately after the coupon is paid.)
b. What is the expected rate of return (i.e., the before-tax component cost) on the
proposed convertible issue?
c. Assume that the convertible bondholders require a 9o/o rale of return. If the coupon
rate remains unchanged, then what conversion ratio will give a bond price of $1,000?
Paul Duncan, financiai manager of EduSoft Inc., is facing a dilemma. The firm was
founded 5 years ago to provide educational software f<lr the rapidly expanding primary
and secondary school rnarkets. Although EduSoft has done well, the firm's founder
believes an industry shakeout is irnminent. To surwive, EduSoft must grab market share
now, and this will require a large infusion of new capital.
Because he expects earnings to continue rising sharply and looks for the stock price to
follow suit, Mr. Duncan does not think it lvouid be wise to issue new common stock at
this time. On the other hand, interest rates are currently high by historical standards, and
the firm's B rating means that interest payments on a nerv debt issue nould be prohibitive.
Thus, he has narrowed his choice offinancing alternatives to (l) preferred stock, (2) bonds
with warrants, or (-l) convertible bonds.
As Duncan's assistant, you have been asked to help in the decision process by
ansu,ering the following questions.
a. How does preferred stock differ from both common equity and debt? Is preferred
stock more risky than common stock? What is floating rate preferred stock?
b. How can knowledge of call options help a financial manager to better understand
warrants and convertibles?
c. Mr. Duncan has decided to eliminate preferred stock as one of the alternatives and
focus on the others. EcluSoll's investment banker estimates that EduSoft could issue a
bond-with-warrants package consisting of a 2O-year bond and 27 warrants. Each
warrant would have a strike p.
Book pdf- Working capital management ( cost of capital and working capital)Tanjin Tamanna urmi
The termworking capitaloriginated with the old Yankee peddler who would load
up his wagon and go off to peddle his wares. The merchandise was called
“working capital”because it was what he actually sold, or“turned over,”to
produce his profits. The wagon and horse were his fixed assets. He generally
owned the horse and wagon (so they were financed with“equity”capital), but he
bought his merchandise on credit (that is, by borrowing from his supplier) or with
money borrowed from a bank. Those loans were calledworking capital loans,and
they had to be repaid after each trip to demonstrate that the peddler was solvent
and worthy of a new loan. Banks that followed this procedure were said to be
employing“sound banking practices.”The more trips the peddler took per year,
the faster his working capital turned over and the greater his profits
75 words as reply to this post if you cite also reference Dunca.docxpriestmanmable
75 words as reply to this post if you cite also reference
Duncan Moogi
Hello class and prof.
It is important for organizations to create accurate and up-to-date annual budgets to maintain control over their finances, and to show funders exactly how their money is being used. How specific and complex the actual budget document needs to be, depends on how large the budget is, how many funders you have and what their requirements are, how many different programs or activities you are using the money for, etc. At some level, however, the budget will need to include:
Projected expenses. The amount of money expected to be spent in the coming fiscal year, broken down into the categories expect to be covered - salaries, office expenses, etc. Projected income. The amount of money expected to be taken in for the coming fiscal year, broken down by sources -- i.e., the amount expected from each funding source, including not only grants and contracts, but also internal fundraising efforts, memberships, and sales of goods or services. The interaction of expenses and income. What gets funded from which sources? In many cases, this is a condition of the funding: a funder agrees to provide money for a specific position, for instance, or for activities or items. If funding comes with restrictions, it is important to build those restrictions into the budget, to make sure money is spend as told to the funder. Adjustments to reflect reality as the year goes on. The budget will likely begin with estimates, and as the year progresses, those estimates need to be adjusted to be as accurate as possible to keep track of what is really happening.
Why have a financial plan?
It sharpens understanding of goals. It gives the real picture - by accurately showing what you can afford and where the gaps in funding are, the budget allows to plan beforehand to meet needs, and to decide what is able to be done each year. It also encourages effective ways of dealing with money issues - by showing what you cannot afford with known income, a budget can motivate you to be creative - and successful - in seeking out other sources of funding. It fills the need for required information - the completed budget is a necessary element of funding proposals and reports to funders and the community. It facilitates discussion of the financial realities of the organization. It helps you avoid surprises and maintain fiscal control. (community toolbox n.d.)
According to Jason Gordon (20 December 2020), operating budget is the daily expenses that are projected from daily operations, including raw materials, machinery, labor, and utility expenses, among others. The company will generally use income projections when planning for an operating budget. Operating budgets are usually created before the start of a new financial year. They are often presented in an income statement format with a schedule that allows the management to provide updates of monthly expenses incurred. In addition,.
Long term decision-making for health and social care
Long term decision-making for health and social care
Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care
Defining investment:
A current commitment of £ for a period of time in order to derive future payments that will compensate for:
• the time the funds are committed
• the expected rate of inflation
• uncertainty of future flow of funds
Assignment
Marginal Revenue Product
Marginal revenue product is defined as the change in total revenue that results from the employment of an additional unit of a resource. A producer wishes to determine how the addition of pounds of plastic will affect its MRP and profits. See the table below, and answer each of the questions.
Pounds of plastic (quantity of resource)
Number of assemblies (total product)
Price of assemblies ($)
0
0
-
1
15
13
2
30
11
3
40
9
4
55
7
5
58
5
a. The marginal product of the 3rd pound of plastic is ________.
b. The marginal revenue product of the 3rd pound of plastic is ______.
c. The price of plastic is $135 per pound. To maximize profit, the producer should produce
__________________.
d. The price of plastic is $135 per pound. To maximize profit, the producer should buy and use:
________________.
Grading Criteria Assignments
Maximum Points
Meets or exceeds established assignment criteria
40
Demonstrates an understanding of lesson concepts
20
Clearly presents well-reasoned ideas and concepts
30
Uses proper mechanics, punctuation, sentence structure, and spelling
10
Total
100
Case Study
C&MDS, Inc.
Some time ago, at the beginning of 2010, an entrepreneur named Richard Alestar started a small business as a sole proprietor in Oregon - a business that manufactured sensors for cameras that could be used in motion detection systems. The business was very successful and he decided to incorporate in the latter part of 2011 under the name C&MDS, Incorporated. He wanted to name it Camera and Motion Detection Systems, but his marketing manager convinced him it was too difficult to remember. Alestar’s long-term plan was to obtain public funding to support growth anticipated in about 4-6 years. In the meantime, he hired electrical engineers and a solid management team capable of building an organization that would enable the company to eventually go public. He thought his proprietary sensors and equipment could not be duplicated for a number of years. There was only one competitor in the market niche where he competed that had a significant market share, but they were a follower, not a leader. Besides, he planned to grow the market himself, based on the increased focus and attention in the public arena on crime prevention, detection and surveillance using cameras with his sensors. He also was developing a host of other potential applications.
Alestar had developed a good relationship with his investment banker Sophia Pound, and had just begun discussions with respect to obtaining additional capital required to position the company to go public. These discussions also involved the chief financial officer (CFO), Mitch O. Dinero, who had brought up the issue of the appropriate capital structure (target capital structure) that C&MDS should consider. They both thought the current mix in the capital structure was close to optimal, and that only minor changes would be necessary. However, they would defer to the investment banke ...
FinanceTest ISummer 20191. Using the following data, prepare a .docxericn8
FinanceTest ISummer 2019
1. Using the following data, prepare a three-stage ROE decomposition (DuPont Analysis) for Home Depot.
Return on equity (ROE)
12%
Sales
$5,000
Current ratio
2.29
Dividend payout ratio
25%
Dividends paid
$100
Total liabilities
$4,000
Accounts payable
$600
My work:
1) ROE = Net Income/Sales x Sales/ Equity (or 12%)
2) ROE = Net Income/ Sales x Sales/Assets x Assets/Equity
or …….(400/5,000) (5,000/ Assets) (Assets/Equity)
3) ROE = (Net Profit Margin) (Asset Turnover) (Equity Multiple)
Side notes:
(Accounts Payable) (Current Ratio) = 1,374/ 600 = 2.29
Current assets = 1,374
Current Liability or Accounts payable = 600
Current ratio = 2.29
2. Your task is to update your firm’s long-term financial model (that was originally prepared last year). In financial modeling, a key assumption involves the firm’s dividend policy, as typically specified by the firm’s payout ratio.
You recognize many differences between today and last year.
Last year, the Treasury Yield Curve was upward sloping. Today, the Treasury Yield Curve is inverted. Last year, the Fed was expected to raise interest rates. Today, the Fed is expected to lower interest rates. We also know the following:
TodayLast year
Forward P/E
16
20
Equity Multiplier
2.50
1.95
Based on the differences described above, would you expect the payout ratio in this year’s financial model to be higher or lower than it was last year? Briefly explain.
Based on the differences above, I expect that the payout ratio in this year’s financial model to be lower along with short term headwinds. The earnings per share is going down and the price is taking a hit. Also, assets are leaning towards the heavier side.
3. Glencore will need to have $3,000 on June 20, 2023 (four years from now) to purchase new equipment. To accumulate this money, it will make four equal investments, with the first of the equal investments beginning one year from now.
a. If Glencore can earn an annual interest rate of 10%, how much must it invest per year?
My work:
P1 = 646.41 x 1.10
P2 = 646.41 x 1.10
P3 = 646.41 x 1.10
P4 = 646.41 x 1.10
Invest per year = $646.41
=PMT (10%,4,0,3000,0)
b. After presenting your findings from the above calculation, Glencore’s CFO asks you to consider an alternative scenario. Both changes are to occur today and will continue throughout the four years. You are to consider both changes simultaneously.
1. The interest rate will increase today and remain at that higher level.
2. There will still be four equal investments, but the first investment will occur immediately.
Without doing any calculations, how would these changes (considered simultaneously) affect your answer in part a? Using no more than 50 words, carefully justify your response. Do not write more 50 words.
My response:
With a higher rate (ex: 12%) Glencore’s money is working harder. If less money is put down, then more money will result in t.
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could be convertible into 32 shares of stock). Coupon payments will be made annually. The
bonds will be noncallable for 5 years, after which they will be callable at a price of 91,090;
this call price would decline by $6 per year in Year 6 and each year thereafter. For
simplicity, assume that the bonds may be called or converted only at the end of a year,
immediately after the coupon and dividend payments. Management will call the bonds
when their conversion value exceeds 25o/o of thetr par value (not their call price).
a. For each year, caiculate (1) the anticipated stock price, (2) the anticipated conversion
value, (3) the anticipated straight-bond price, and (4) the cash flow to the investor
asstrming conversion occurs. At what year do you expect the bonds will be forced into
conversion with a call? What is the bond's value in conversion when it is converted at
this time? What is the cash flow to the bondholder when it is converted at this time?
(Hint: The cash flow includes the conversion value and the coupon payment, because
the conversion occurs immediately after the coupon is paid.)
b. What is the expected rate of return (i.e., the before-tax component cost) on the
proposed convertible issue?
c. Assume that the convertible bondholders require a 9o/o rale of return. If the coupon
rate remains unchanged, then what conversion ratio will give a bond price of $1,000?
Paul Duncan, financiai manager of EduSoft Inc., is facing a dilemma. The firm was
founded 5 years ago to provide educational software f<lr the rapidly expanding primary
and secondary school rnarkets. Although EduSoft has done well, the firm's founder
believes an industry shakeout is irnminent. To surwive, EduSoft must grab market share
now, and this will require a large infusion of new capital.
Because he expects earnings to continue rising sharply and looks for the stock price to
follow suit, Mr. Duncan does not think it lvouid be wise to issue new common stock at
this time. On the other hand, interest rates are currently high by historical standards, and
the firm's B rating means that interest payments on a nerv debt issue nould be prohibitive.
Thus, he has narrowed his choice offinancing alternatives to (l) preferred stock, (2) bonds
with warrants, or (-l) convertible bonds.
As Duncan's assistant, you have been asked to help in the decision process by
ansu,ering the following questions.
a. How does preferred stock differ from both common equity and debt? Is preferred
stock more risky than common stock? What is floating rate preferred stock?
b. How can knowledge of call options help a financial manager to better understand
warrants and convertibles?
c. Mr. Duncan has decided to eliminate preferred stock as one of the alternatives and
focus on the others. EcluSoll's investment banker estimates that EduSoft could issue a
bond-with-warrants package consisting of a 2O-year bond and 27 warrants. Each
warrant would have a strike p.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
Antifertility, Toxicity studies as per OECD guidelines
2. coordination between the choice of the fiscal year-end and the time of the year that the
legislative body is in session. Chapter 5 • Capital Budgeting 163 capital items well in
advance of the collection of cash receipts earned from the use of those items. When an
organization purchases a capital asset, it must recognize that by using cash today to acquire
a capital asset, it is forgoing a variety of other potential uses for that money. At a minimum,
cash could be put in an interest-earning account, and in the future the organization would
have the original amount plus interest. As a result, paying $1,000 today cannot be equated
with receiving $1,000 several years from now. One would only give up $1,000 today if the
benefit to be realized from doing so is worth at least the $1,000 plus the interest that could
be earned. This gives rise to a concept referred to as the time value of money (TVM). Based
on the TVM concept discussed in this chapter, the financial appropriateness of an
investment can be calculated. The discussion in this chapter examines TVM techniques for
investment analysis, including net present cost, annualized cost, net present value, and
internal rate of return. The chapter then examines an approach called cost-benefit analysis
which governS ments often use in evaluating capital budgeting decisions. M The chapter
concludes with a discussion of the payback and accounting rate of I but since they are
sometimes return approaches. Both approaches have their limitations, used the reader
should be aware of the methods and their T drawbacks. H , ISBN 1-323-02300-3 WHY DO
WE NEED A SEPARATE CAPITAL BUDGET? Assume that the Hospital for Ordinary Surgery
(HOS) is considering adding a new wing. The hospital currently has annual revenues of
$150 million and annual operating expenses of $148 million. The cost to construct the Anew
wing is $360 million. Once opened, the new wing is expected to increase the annual
revenues and operating costs of HOS by $70 million and $20 million, respectively, D
excluding the cost of constructing the building itself. A The operating budget for HOS would
include $220 million in revenue (i.e., the M original $150 million plus the new $70 million).
If the entire cost of the new wing is charged to operating expenses, the total operating
expenses would be $528 million (i.e., $148 million of expenses, the same as last year, plus
$20 million in new operating 2 expenses, plus the $360 million for the new building). This
would result in a loss of 0 the project might be rejected as $308 million for the year. This
amount is so huge that being totally unfeasible. 0 However, the benefit of the $360 million
investment in the new wing will be real8 that provide benefits beyond ized over many
years, not just one. When large investments the current year are included in an operating
budget,Tthey often look much too costly. However, if one considers their benefits over an
extended period of time, they may not be too costly. The role of the capital budget is to pull
theS acquisition cost out of the operating budget and place it in a separate budget where its
costs and benefits can be evaluated over its complete lifetime. Suppose that the top
management of HOS, after careful review and analysis, decides that the benefits of the new
hospital wing over its full lifetime are worth its $360 million cost. Based on the
recommendation of chief operating officer (COO) Steve Netzer, as well as the hospital’s chief
executive officer (CEO) and chief financial officer (CFO), the Board of Trustees of HOS
approves the capital budget, including the cost of construction of the new wing. The cost of
that capital asset will be spread out over its useful life, with a portion included in the
operating budget each year. The process of spreading out the cost of a capital asset over the
4. amortization of the cost of such assets is referred to as depletion. 3 This example has been
somewhat simplified. In most cases, we would expect the building to still have some value at
the end of the useful lifetime. That residual, or salvage, value would be deducted from the
cost before calculating the annual depreciation expense. For example, if we expect the
building to be worth $40 million after 40 years, then only $320 million ($360 million cost
less $40 million salvage) would be depreciated. The annual depreciation would be $8
million ($320 40 years) instead of $9 million. 4 From an economic perspective, true
depreciation represents the amount of the capital asset that has been consumed in a given
year. We could measure that by assessing the value of the asset at the beginning and end of
the year. The depreciation expense would be the amount that the asset had declined in
value. In practice, it is difficult to assess the value of each capital asset each year. Therefore,
accounting uses simplifications such as an assumption that an equal portion of the value of
the asset is used up each year. Alternatives, referred to as accelerated depreciation
methods, are designed to better approximate true economic depreciation. They are
discussed in Appendix 11-A at the end of Chapter 11. Chapter 5 • Capital Budgeting 165 40
percent of the cost of the 50-cent pen in one year and 60 percent of the cost the next year.
Similarly, we do not know exactly how much of the binding machine is used each year. Will
it really last 10 years, or will it last 11 years? Accounting records should be reasonable
representations of what has occurred from a financial viewpoint and should allow the user
of the information to make reasonable decisions. It is true that charging the full $200 cost in
the year of purchase will overstate the amount of resources that have been used up in that
year. However, it is easier to do it that way. The organization must weigh whether the
simplified treatment is likely to create a severe enough distortion that it will affect decisions
that must be made. For the 50-cent pen, that is never likely to happen. For a $360 million
building addition, by contrast, treating the full cost as a current year expense would likely
affect decisions. The hard part is determining where to draw the line. Organizations must
make a policy decision regarding what dollar level is so substantial that it is worth the extra
effort of depreciating the asset (allocating a share of its cost to each year it is used) rather
than charging it all as S an expense in the year of acquisition. To most organizations, the
difference between charging $200 in one year or $20 a M year for 10 years will not be large
enough to affect any decisions. In some organizations, I the difference between charging
$50,000 in one year versus $5,000 per year for 10 years would not be large enough to affect
any decisions. A cutoff of $1,000, or $5,000, or even T $10,000 would be considered to be
reasonable by many public, health, and not-for-profit H organizations. Many organizations
use even higher levels. , WHY DO CAPITAL ASSETS WARRANT SPECIAL ATTENTION? It
seems reasonable to include just one year’s worth A of depreciation expense in an operating
budget. However, that does not fully explain why a totally separate budget D to be special
approaches for is prepared for capital assets, or why there should need evaluating the
appropriateness of individual capital asset A acquisitions. Some additional reasons that
capital assets warrant special attention are: M ISBN 1-323-02300-3 • the initial cost is large,
• the items are generally kept a long time, • we can only understand the financial impact if
we2evaluate the entire lifetime of the assets, and 0 • since we often pay for the asset early
and receive payments as we use it later, the 0 time value of money must be considered. 8
20. for 20 years. This results and the golf course do not have any investments that earn a higher
rate of return than 15 percent. Both projects are very attractive, but we cannot do both
since they both use the same piece of land. Often, when IRR is used to evaluate investments,
managers rank the projects in order of IRR, first selecting those with the highest IRR. If that
were done in Millbridge, it would be a mistake. Although a 39.95 percent return may appear
better than a 29.84 percent return, overall the town would be better off with the 19th Hole.
Why? Because if it invests in the parking lot, the town will earn 39.95 percent on an
investment of $50,000 but will then invest the remainder of the money at 15 percent. If the
managers decide to invest $500,000 for the year, they can put the entire amount into the
19th Hole and earn a 29.84 percent return on the total amount versus investing $50,000 at
39.95 percent and $450,000 at 15 percent. Chapter 5 • Capital Budgeting 185 Consider the
following annual returns: $20,000 for the parking lot (given previously) 71, 893 for other
projects (PV $450,000; N 20; i 15%; PMT $71,893) $91,893 total annual return versus
$150,000 for the 19th Hole (given previously) Clearly, the returns are better by investing in
the 19th Hole. We would fail to see that we simply chose the project with the highest IRR
first. By contrast, the NPV method gives the correct information. The NPV for the 19th Hole
evaluated at a hurdle rate of 15 percent is $438,900, whereas the NPV for the parking lot
and other projects is $75,187. Finally, many investment projects consist of anSinitial cash
outflow followed by a series of cash inflows. This is referred to as a conventional pattern of
cash flows. M However, it is possible that some of the subsequent cash flows will be
negative. In that case, the method can produce multiple answers, and Ithe actual rate of
return becomes ambiguous. In such cases, one is better off relying on T the NPV technique.
A modified IRR method addresses some of these concerns. The interested reader H listed at
the end of this chapter. should consult an advanced text such as several of those , Selecting
an Appropriate Discount Rate ISBN 1-323-02300-3 The rate used for PV calculations is
often called the hurdle A rate or required rate of return, or simply the discount rate. The
discount or hurdle or required rate should be based on D the organization’s cost of capital.
Often not-for-profit organizations receive donations A that can be used for capital
investments. This complicates the measurement of the cost of capital. For projects that are
M specifically funded by donations, it may not be necessary to calculate the NPV. However,
that involves assuming that all costs are covered by the donation. To the extent that the
organization must bear other costs, it should employ TVM techniques with a hurdle rate 2
based on its overall cost of capital. Selection of an appropriate discount rate for
0governments to use is difficult. According to Mikesell, “There is . . . no single discount0rate
that is immediately obvious as the appropriate rate for analysis.”7 The two methods he
proposes are the interest 8 rate that the funds could earn rate the government must pay to
borrow funds and the if they were employed in the private sector. The problem with the
former approach T is that the government may be able to borrow money at a substantially
lower interest rate than could be earned on money invested in the S private sector. This
might unduly siphon money out of the private sector. The latter approach (the rate the
funds could earn in the private sector) may be more appropriate, but is likely to be much
harder to determine. In practice, there is little consistency in the discount rate used across
governments and even within different branches of the same government. Yet, despite these
26. profitability of an investment calculated by considering the profits it generates, as
compared with the amount of money invested. accumulated depreciation. Total amount of
depreciation related to a fixed asset that has been taken over all of the years the
organization has owned that asset. amortization. Allocation of the cost of an intangible asset
over its lifetime. annualized cost method. Approach used to compare capital assets with
differing lifetimes. The T S Chapter 5 • Capital Budgeting 191 ISBN 1-323-02300-3 annuity
payments (PMT). See annuity. capital acquisitions. See capital assets. capital assets.
Buildings or equipment with useful lives extending beyond the year in which they were
purchased or put into service; also referred to as long-term investments, capital items,
capital investments, or capital acquisitions. capital budget. Plan for the acquisition of
buildings and equipment that will be used by the organization in one or more years beyond
the year of acquisition. Often a minimum dollar cutoff must be exceeded for an item to be
included in the capital budget. capital budgeting. Process of proposing the purchase of
capital assets, analyzing the proposed S purchases for economic or other justification, and M
encompassing the financial implications of capital items into the master budget. I cash flow.
Measure of the amount of cash received T or disbursed at a given point in time, as opposed
to H revenues or income, which frequently is recorded at a time other than when the actual
cash receipt or , payment occurs. cell reference formula. An Excel formula that uses the cell
addresses where the raw data are located. A compound interest. Method of calculating
interest D that accrues interest not only on the amount of the original investment, but also
on the interest that has A been earned. M cost of capital. The cost to the organization of its
money. Often represented by the interest rate that the organization pays on borrowed
money. 2 cost-benefit analysis. Measurement of the relative 0 costs and benefits associated
with a particular project 0 or task. depletion. The process of allocating a portion of 8 the
value of natural resources to expense as units of T the resource are extracted. S
depreciation. Allocation of a portion of the cost of a capital asset into each of the years of the
asset’s expected useful life. depreciation expense. Amount of the original cost of a capital
asset allocated as an expense each year. discounted cash flow. Method that allows
comparisons of amounts of money paid at different points of time by discounting all
amounts to the present. discounting. Reverse of compound interest; a process in which
interest that could be earned over time is deducted from a future payment to determine
how much the future payment is worth at the present time. discount rate. Interest rate used
in discounting. future value (FV). The amount a present amount of money will grow to be
worth at some point in the future. hurdle rate. See required rate of return. internal rate of
return (IRR). Discounted cash flow technique that calculates the rate of return earned on a
specific project or program. net present cost (NPC). Aggregate present value of a series of
payments to be made in the future. …