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ADM 1340 Study Guide - Asset, Jato, Interest Expense

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School
University of Ottawa
Department
Administration
Course
ADM 1340
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All

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ADM 1340 Full Course Notes
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ADM 1340 Full Course Notes
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Document Summary

Averagenumber of commonshares company if profitable or not. Measures how much cash each dollar of profit. Measures how much the firm earned as a percentage of the investments made by shareholders. High ratio = effective management of its shareholders investments, rising share price. Measures how much the firm has earned from the use of its total assets. Measures the relationship between the assets and the investments made by shareholders to finance them. Low ratio = a high proportion of assets is financed with shareholder"s equity. Measures the return on investment based on the number of shares outstanding. High ratio = a greater ability to finance operating and other cash needs from operating cash inflows. Measures how much profit is earned as a percentage of revenues generated during the. High ratio = effective management of sales and period. expenses. Measures the sales generated by the use of fixed assets (property, plant and equipment, net of accumulated depreciation)

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Related Questions

1.) What is operating leverage? How, if at all, is it similar to financialleverage? If a firm has high operating leverage would you expect it tohave high or low financial leverage? Explain your reasoning.

2.) Why might it make sense for a mature, slow-growth company to havea high debt ratio?

3.) FARO Technologies, whose products include portable 3D measure-ment equipment, recently had 17 million shares outstanding tradingat $42 a share. Suppose the company announces its intention to raise$200 million by selling new shares.a.What do market signaling studies suggest will happen to FARO’sstock price on the announcement date? Why?b.How large a gain or loss in aggregate dollar terms do market sig-naling studies suggest existing FARO shareholders will experienceon the announcement date?c.What percentage of the value of FARO’s existing equity prior tothe announcement is this expected gain or loss?d.At what price should FARO expect its existing shares to sell imme-diately after the announcement?

Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $1.5 out of annual earnings per share of $3.25. Currently, Rubenstein Bros.' stock is selling for $16.50 per share. Adhering to the company's target capital structure, the firm has $8 million in assets, of which 50% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 12%, which is expected to continue this year and into the foreseeable future.

  1. Based on that information, what long-run growth rate can the firm be expected to maintain? Round your answer to two decimal places. Do not round intermediate calculations. (Hint: g = Retention rate x ROE.)
    %

  3. What is the stock's required return? Round your answer to two decimal places. Do not round intermediate calculations.
    %

  5. If the firm changed its dividend policy and paid an annual dividend of $3.00 per share, financial analysts would predict that the change in policy will have no effect on the firm's stock price or ROE. Therefore, what must the firm's new expected long-run growth rate? Round your answer to two decimal places. Do not round intermediate calculations.
    %

    If this plan is implemented, what must the firm's required return be? Round your answer to two decimal places. Do not round intermediate calculations.
    %

  7. Suppose instead that the firm has decided to proceed with its original plan of disbursing $1.5 per share to shareholders, but the firm intends to do so in the form of a stock dividend rather than a cash dividend. The firm will allot new shares based on the current stock price of $16.50. In other words, for every $16.50 in dividends due to shareholders, a share of stock will be issued. How large will the stock dividend be relative to the firm's current market capitalization? (Hint: Remember market capitalization = P0 x number of shares outstanding.) Round your answer to two decimal places. Do not round intermediate calculations.
    %

  9. If the plan in Part d is implemented, how many new shares of stock will be issued? Round your answer to the nearest whole. Do not round intermediate calculations.


    If the plan in Part d is implemented, by how much will the company's earnings per share be diluted? Round your answer to the nearest cent. Do not round intermediate calculations.
    $ per share

Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $1.5 out of annual earnings per share of $3.25. Currently, Rubenstein Bros.' stock is selling for $16.50 per share. Adhering to the company's target capital structure, the firm has $8 million in assets, of which 50% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 12%, which is expected to continue this year and into the foreseeable future.

  1. Based on that information, what long-run growth rate can the firm be expected to maintain? Round your answer to two decimal places. Do not round intermediate calculations. (Hint: g = Retention rate x ROE.)
    %

  3. What is the stock's required return? Round your answer to two decimal places. Do not round intermediate calculations.
    %

  5. If the firm changed its dividend policy and paid an annual dividend of $3.00 per share, financial analysts would predict that the change in policy will have no effect on the firm's stock price or ROE. Therefore, what must the firm's new expected long-run growth rate? Round your answer to two decimal places. Do not round intermediate calculations.
    %

    If this plan is implemented, what must the firm's required return be? Round your answer to two decimal places. Do not round intermediate calculations.
    %

  7. Suppose instead that the firm has decided to proceed with its original plan of disbursing $1.5 per share to shareholders, but the firm intends to do so in the form of a stock dividend rather than a cash dividend. The firm will allot new shares based on the current stock price of $16.50. In other words, for every $16.50 in dividends due to shareholders, a share of stock will be issued. How large will the stock dividend be relative to the firm's current market capitalization? (Hint: Remember market capitalization = P0 x number of shares outstanding.) Round your answer to two decimal places. Do not round intermediate calculations.
    %

  9. If the plan in Part d is implemented, how many new shares of stock will be issued? Round your answer to the nearest whole. Do not round intermediate calculations.


    If the plan in Part d is implemented, by how much will the company's earnings per share be diluted? Round your answer to the nearest cent. Do not round intermediate calculations.
    $ per share