answer

watching

views

11 Dec 2018

Using chapter 11 of healthcare finance 6th edition by Gapenski and Reiter

1. Say your parents give you money for your 5 year olds college education.

Assuming you have no intention of using your money for anything other than that purpose, what would be the approximate maturity of bonds that would minimize components of interest rate risk?

answer

watching

130

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Keith LeannonLv2

12 Dec 2018

Unlock all answers

Get 1 free homework help answer.

Already have an account? Log in

Related questions

I need proof reading help with my assignment please. Due tonight. Thank you.

Gross Margin shows what a company retains after incurring the direct costs associated with producing the goods and services sold. EBayâs gross margin shows they are more efficient than Amazon. Amazon has a larger cost than eBay. Amazon may sell more than eBay, but due to their cost their gross margins are far less than eBayâs. When considering gross margin for an investment opportunity it shows eBay is safer than Amazon for an investment.

After operating margin analysis we can say that eBay has a larger amount of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. In this case eBay will have some revenue left over after paying debt, interest, or other payments.

It goes without saying that most investors pay very close attention to a companyâs Net Profit Margin before they invest their money into a company or a project. Thatâs why after reviewing the Net Profit Margin of both eBay and Amazon, I would suggest investing in eBay, since they are a more profitable company than Amazon.

Interest coverage ratio arises because how effortlessly a company can pay interest on outstanding debt. In this case eBay makes their place safe since they donât have to pay any interest. On the other hand, Amazon has 12.59. In consideration of interest coverage ration it is also could be a good investment.

Market to book ratio is significant to financiers to comprehend how much are they paying for each dollar in net assets. Here Iâve calculated the total book value of its assets and its current market value. Thatâs why I can say that they have enough assets for both them to be strong in future.

ROE is expressed as the amount of net income returned as a percentage of shareholders equity. When an investor decided to finance in some company or project, he also chooses how much he will get back in the future because of their risk taking. In this case it would be more suitable for the financier to invest their money into eBay based on their return.

When somebody is getting ready to invest theyâre always attempting to know where their money goes or is their money appropriately being used? Its gives them a sense of how well a company is using its money to generate returns. Thatâs why its help investors to understand efficiency of allocating the capital under its control to make profitable investments. Since no dividends were declared their efficiency results are the same as their ROE.

In this breakdown we can see that both companies are worthwhile in related to its assets. Though further scrutiny into the figures will show the eBay is more efficient in using its assets to generate earnings. For investment perspectives eBay is the safer place to invest your money.

After all analysis we see Amazon has by far larger sales, but their profit margins are less than eBayâs this is due to their cost being too high. Though eBay may have smaller number of sales they have better profits than Amazon. This is all due to their cost efficiency and well-managed activities. As far as asset turnover Amazon did get the best of eBay, but in the end, after all my analysis I would consider eBay the better option for investment.

F1 Q11-15

Please show all workings/give explanations

Note: Questions 11 â 20 are based on the same mega problem. For convenience we have included the entire set of information in every question. For purposes of the questions that follow, assume that changes in working capital are negligible and capex and depreciation are of the same magnitude and therefore cancel each other. This is the assumption we made in most of the videos to focus on valuation effects of borrowing and taxes and to figure out the key differences between alternative valuation methods.

Q11. You are planning on opening a consulting firm. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% over the foreseeable future thereafter. This endeavor will require a substantial investment and you will have to convince investors to provide you the capital to do so. You will invest some of your own money, convincing other investors will of course be useful for your valuing your own investment decision. A critical piece of your analysis is figuring out the present value of the cash flows of the business. Your research has revealed the following information: similar consulting businesses equity has an average beta of 2.40 and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3.20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on debt are tax deductible. What is the value of your company assuming that it will be all-equity financed? (Enter the nearest rounded dollar number without any $ or comma sign.)

Q12. You are planning on opening a consulting firm. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% over the foreseeable future thereafter. This endeavor will require a substantial investment and you will have to convince investors to provide you the capital to do so. You will invest some of your own money, convincing other investors will of course be useful for your valuing your own investment decision. A critical piece of your analysis is figuring out the present value of the cash flows of the business. Your research has revealed the following information: similar consulting businesses equity has an average beta of 2.40 and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3.20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on debt are tax deductible. You decide to start the business and issue 500,000 shares to finance an all-equity firm, the price per share will be (Enter the number with up to two decimals but without any $ or comma sign):

Q13. You are planning on opening a consulting firm. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% over the foreseeable future thereafter. This endeavor will require a substantial investment and you will have to convince investors to provide you the capital to do so. You will invest some of your own money, convincing other investors will of course be useful for your valuing your own investment decision. A critical piece of your analysis is figuring out the present value of the cash flows of the business. Your research has revealed the following information: similar consulting businesses equity has an average beta of 2.40 and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3.20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on debt are tax deductible. You decide to start the business and issue 500,000 shares to finance an all-equity firm. Soon thereafter your hearing about your new business, your bank is willing to extend you long-term loan/debt in perpetuity of $3.50M as long as you can pay an interest rate of 8%. Assuming that the chances of bankruptcy are negligible with this amount of ongoing debt on your balance sheet, if you take this debt and retire shares using the debt, the value of the firm will go:

a) Remain the same.

b) Down.

c) Cannot determine based on the available information.

d) Up.

Q14. You are planning on opening a consulting firm. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% over the foreseeable future thereafter. This endeavor will require a substantial investment and you will have to convince investors to provide you the capital to do so. You will invest some of your own money, convincing other investors will of course be useful for your valuing your own investment decision. A critical piece of your analysis is figuring out the present value of the cash flows of the business. Your research has revealed the following information: similar consulting businesses equity has an average beta of 2.40 and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3.20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on debt are tax deductible. You decide to start the business and issue 500,000 shares to finance an all-equity firm. Soon thereafter your hearing about your new business, your bank is willing to extend you long-term loan/debt in perpetuity of $3.50M as long as you can pay an interest rate of 8%. Realizing that the chances of bankruptcy are negligible with this amount of ongoing debt on your balance sheet, and the riskiness of the tax shield of debt is the same as the riskiness of debt, you are seriously contemplating taking on the debt and using all of it to retire some shares. If you decide to enter this debt contract with the bank, the value of the firm will become (Enter the nearest rounded dollar number without any $ or comma sign):

Q15. You are planning on opening a consulting firm. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% over the foreseeable future thereafter. This endeavor will require a substantial investment and you will have to convince investors to provide you the capital to do so. You will invest some of your own money, convincing other investors will of course be useful for your valuing your own investment decision. A critical piece of your analysis is figuring out the present value of the cash flows of the business. Your research has revealed the following information: similar consulting businesses equity has an average beta of 2.40 and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3.20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on debt are tax deductible. Soon thereafter hearing about your new business, your bank is willing to extend you long-term loan/debt in perpetuity of $3.50M as long as you can pay an interest rate of 8%. Realizing that the chances of bankruptcy are negligible with this amount of ongoing debt on your balance sheet, and the riskiness of the tax shield of debt is the same as the riskiness of debt, you are seriously contemplating taking on the debt and using all of it to retire some shares. If you decide to enter this debt contract with the bank, what will be the price per share of the remaining shares? (Enter the nearest rounded dollar number without any $ or comma sign):

FINANCIAL MANAGEMENT- 14th Edition Chapter #23 - Mini Case

Assume you have just been hired as a financial analyst by Tennessee Sunshine Inc., a mid-sized Tennessee company that specializes in creating exotic sauces from imported fruits and vegetables. The firmâs CEO, Bill Stooksbury, recently returned from an industry corporate executive conference in San Francisco, and one of the sessions he attended was on the pressing need for companies to institute enterprise risk management programs. Because no one at Tennessee Sunshine is familiar with the basics of enterprise risk management, Stooksbury has asked you to prepare a brief report that the firmâs executives could use to gain at least a cursory understanding of the topics.

To begin, you gathered some outside materials on derivatives and risk management and used these materials to draft a list of pertinent questions that need to be answered. In fact, one possible approach to the paper is to use a question-and-answer format. Now that the questions have been drafted, you have to develop the answers.

a. Why might stockholders be indifferent to whether or not a firm reduces the volatility of its cash flows?

b. What are six reasons risk management might increase the value of a corporation?

c. What is COSO? How does COSO define enterprise risk management?

d. Describe the eight components of the COSO ERM framework.

e. Describe some of the risks events within the following major categories of risk:

o (1) strategy and reputation,

o (2) control and compliance,

o (3) hazards,

o (4) human resources,

o (5) operations,

o (6) technology, and

o (7) financial management.

f. What are some actions that companies can take to minimize or reduce risk exposures?

g. What are forward contracts? How can they be used to manage foreign exchange risk?

h. Describe how commodity futures markets can be used to reduce input price risk.

i. It is January, and Tennessee Sunshine is considering issuing $5 million in bonds in June to raise capital for an expansion. Currently, the firm can issue 20-year bonds with a 7% coupon (with interest paid semiannually), but interest rates are on the rise and Stooksbury is concerned that long-term interest rates might rise by as much as 1% before June. You looked online and found that June T-bond futures are trading at 111â25 . What are the risks of not hedging, and how might TS hedge this exposure? In your analysis, consider what would happen if interest rates all increased by 1% .

j. What is a swap? Suppose two firms have different credit ratings. Firm Hi can borrow fixed at 11% and floating at LIBOR + 1% . Firm Lo can borrow fixed at 11.4% and floating at LIBOR + 1.5% . Describe a floating versus fixed interest rate swap between firms Hi and Lo in which Lo also makes a âside paymentâ of 45 basis points to Firm L.

Weekly leaderboard

Home

Homework Help 3,900,000

Finance 370,000

Unlock all answers

Related questions

Related Documents

FIN-3403 Midterm: FIN3403 Test 2 Rvw.docx

FIN 2800 Study Guide - Midterm Guide: Investment, Weighted Arithmetic Mean, Capital Structure

FIN 322 Study Guide - Final Guide: Premium Bond, Risk Premium, Weighted Arithmetic Mean

Weekly leaderboard