Tài liệu Khối Ngành Kinh Tế

If the new product line would decrease sales of the firm’s other products by $50,000 per year, would this affect the analysis? Yes. The effects on the other projects’ CFs are “externalities”. Net CF loss per year on other lines would be a cost to this project. Externalities will be positive if new projects are complements to existing assets, ne...

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Find cash flow differences between the projects. See data at beginning of the case. Enter these differences in CFLO register, then press IRR. Crossover rate = 8.68%, rounded to 8.7%. Can subtract S from L or vice versa, but easier to have first CF negative. If profiles don’t cross, one project dominates the other.

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FCF0 = $20 million WACC = 10% g = 5% Marketable securities = $100 million Debt = $200 million Preferred stock = $50 million Book value of equity = $210 million

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More risky; company not required to pay preferred dividend. However, firms want to pay preferred dividend. Otherwise, (1) cannot pay common dividend, (2) difficult to raise additional funds, and (3) preferred stockholders may gain control of firm.

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A*/S0: assets required to support sales; called capital intensity ratio. ∆S: increase in sales. L*/S0: spontaneous liabilities ratio M: profit margin (Net income/sales) RR: retention ratio; percent of net income not paid as dividend.

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Inventory turnover is below industry average. Firm might have old inventory, or its control might be poor. No improvement is currently forecasted.

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No. The ROIC of 0.5% is less than the WACC of 10%. Investors did not get the return they require. Note: High growth usually causes negative FCF (due to investment in capital), but that’s ok if ROIC > WACC. For example, Home Depot had high growth, negative FCF, but a high ROIC.

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During nonconstant growth, dividend yield and capital gains yield are not constant. If current growth is greater than g, current capital gains yield is greater than g. After t = 3, g = constant = 6%, so the t = 4 capital gains gains yield = 6%. Because rs = 13%, the t = 4 dividend yield = 13% - 6% = 7%.

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At maturity, the value of any bond must equal its par value. The value of a premium bond would decrease to $1,000. The value of a discount bond would increase to $1,000. A par bond stays at $1,000 if rd remains constant.

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Indifference curves reflect an investor’s attitude toward risk as reflected in his or her risk/return tradeoff function. They differ among investors because of differences in risk aversion. An investor’s optimal portfolio is defined by the tangency point between the efficient set and the investor’s indifference curve.

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