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A startup consumer products firm has two owners who are both in low tax brackets. The corporation expects rapid earnings growth over the next five years. What should it consider when deciding on internal versus external financing
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- The financial manager for "ERR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. 'ERR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholder's wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information:Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital = 10% Inventory turnover =18.25 1- Calculate the daily NPV of the current terms. 2- Calculate the daily NPV of the proposed terms. 3- Based on your own calculations, what is your recommendation? Why? 4- Calculate the NPVCCP of the present terms. Interpret. 5- Calculate the ANPVCCP-aggregate of the Company. Interpret.You have been asked by your employers to demonstrate your knowledge in business valuation process, by analyzing the value of Best Group Savings and Loans Company (BGSLC). The company paid a dividend of GH¢ 250,000 this year. The current return to shareholders of companies in the same industry as BGSLC is 12%, although it is expected that an additional risk premium of 2% will be applicable to BGSLC, being a smaller and unquoted company. Compute the expected valuation of BGSLC, if: The current level of dividend is expected to continue into the foreseeable future The dividend is expected to grow at a rate 4% par into foreseeable future The dividend is expected to grow at a 3% rate for three years and 2% afterwardsYou have invested in a business that proudly reports that it is profitable. Your investment of $5,000 has produced a profit of $300. The managers think that if you leave your $5,000 invested with them, they should be able to generate $300 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 8%. Should you remain invested in this firm? The expected return of your investment is %. (Round to one decimal place.) (Select from the drop-down menus.) If projects that are similar in horizon and risk are offering an expected return of 8%, then this business earning your opportunity cost of capital, and you should remain invested invest elsewhere
- A financial services company is considering a new investment in a new technology platform for investment management. The company has identified a fintech startup that is seeking funding at a valuation of $5 million. The company expects to receive a dividend of $200,000 per year over a five year term and sells it equity stake at a valuation of $10 million. What is the expected return on investment if the financial services company invests $2 million in the fintech startupConsider the following thoughts of a manager at the end of the companys third quarter: If I can increase my reported profit by 2 million, the actual earnings per share will exceed analysts expectations, and stock prices will increase. The stock options that I am holding will become more valuable. The extra income will also make me eligible to receive a significant bonus. With a son headed to college, it would be good if I could cash in some of these options to help pay his expenses. However, my vice president of finance indicates that such an increase is unlikely. The projected profit for the fourth quarter will just about meet the expected earnings per share. There may be ways, though, that I can achieve the desired outcome. First, I can instruct all divisional managers that their preventive maintenance budgets are reduced by 25 percent for the fourth quarter. That should reduce maintenance expenses by approximately 1 million. Second, I can increase the estimated life of the existing equipment, producing a reduction of depreciation by another 500,000. Third, I can reduce the salary increases for those being promoted by 50 percent. And that should easily put us over the needed increase of 2 million. Required: Comment on the ethical content of the earnings management being considered by the manager. Is there an ethical dilemma? What is the right choice for the manager to make? Is there any way to redesign the accounting reporting system to discourage the type of behavior the manager is contemplating?A firm's financial managers are evaluating two potential investments with a cost of $10,000 each. They forecast returns of $3,000 per year for 5 years for Investment A and $4,000 per year for 5 years for Investment B. The returns are more uncertain for B than for A. Which of the following is true? Investment A is better than B according to shareholder wealth maximization criterion. Investment B is better than A according to shareholder wealth maximization criterion. Investment A is better than B according to the profit maximization criterion. Investment B is better than A according to the profit maximization criterion.
- You have invested in a business that proudly reports that it is profitable. Your investment of $4800 has produced a profit of $298. The managers think that if you leave your $4800 invested with them, they should be able to generate S298 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 8%. Should you remain invested in this firm? The expected return of your investment is %. (Round to one decimal place.)Assume that you are consulting the board of directors for a start-up firm. The firm is expecting small profits and possible losses in the next couple of years, but significant growth over the next 10 years. They have asked your opinion on a dividend policy for the firm. In your initial post, provide your opinion on a dividend policy along with reasoning using terminology and business factors discussed in this module.A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to DECREASE? Group of answer choices: The company begins to pay employees weekly rather than monthly. The company decides to take discounts on purchased materials. The company’s profit margin increases. The company learns that it has no excess capacity. The company increases its dividend payout ratio.
- An investor is considering starting a new business. The company would require $475,000 of assets, and itwould be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business? Please show work in excelLana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?1. What is the Internal Growth rate for Cafes Richard ? What is the sustainable growth rate for Cafes Richard ? If sales grow at SGR, how much External Financing will be needed for the year 2021 using Percentage of sales approach, assuming that the firm is operating at full capacity? Interest expense and tax rate will not change. Calculate the tax rate (hint: tax rate = tax/taxable income). Please create pro forma statements as well. What's the impact in the new Debt to equity ratio, if any?