30 / 3.18 = 9.43 Stock Price : $ 30 30% Debt: x / 3.33 = 9.43 Stock Price : $31.4 50% Debt: x / 3.41 = 9.43 Stock Price : $32.2 70% Debt: x / 3.49 = 9.43 Stock Price : $32.9 Assumption : the P/E ratio remains constant for all the cases. The stock price‚ which represents the Value of the Firm‚ is the highest at $32.9 at the 70% debt ratio. This is in accordance with Figure 1‚ which shows that at lowest WACC (as calculated) the value of the firm will be maximum. These calculations
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1. How much business risk does AHP face? How much financial risk would the company face at each of the proposed levels of debt shown in Exhibit 3? Financial risk is a function of the company’s business risk multiplied by the debt/equity (D/E) ratio. Thus the higher the D/E ratio‚ the greater the leverage and financial risk. The following table provides the D/E ratios at each proposed level‚ which indicate the factor of increased financial risk. Current structure: no financial risk
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American Home Product Corporation (AHP)‚ a highly growing American company‚ has four business lines: prescription drugs‚ packaged drugs‚ food products‚ house wares and household products. Its policies include: -A tight financial control and maintained an aggressive capital structure policy. - Make money for its stockholders and to maximize profits by minimizing cost. - It has been able to finance internally its growth while paying a very high portion of its earning to its shareholders
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Investment and Capital Structure Case 5 American Home Products Corporation Assess American Home Products ’ (AHP) business risk. THE BUSINESS RISK OF A COMPANY INCLUDES ΒR WHICH IS RELATED TO ITS REVENUE AND OPERATING LEVERAGE WHICH ARISES FROM FIXED COSTS OF PRODUCTION. IN GENERAL‚ THE PHARMACEUTICAL INDUSTRY HAS A VERY HIGH BUSINESS RISK DUE TO HIGH RISKS AND COSTS THAT ARE ASSOCIATED WITH THE RESEARCH AND DEVELOPMENT OF NEW PRODUCTS. AMERICAN HOME PRODUCTS HAS A LOW BUSINESS RISK IN COMPARISON
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American Home Products Corporation Symbol : AHP NYSE : AHP Business Description : American Home Products (AHP) is one of the largest pharmaceutical companies in the world‚ based in Madison‚ New Jersey‚ USA. American Home Products is a corporation involved in the production and marketing of over 1500 consumer goods allocated among four distinct business lines. AHP is a company with virtually no debt and an impressive amount of cash in its balance sheet. The company is characterized by its
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American Home Products 1. How much business risk does American Home Products face? How much financial risk would American Home Products face at each of the proposed levels of debt shown in case Exhibit 3? How much potential value‚ if any can American Home Products create for its shareholders at each of the proposed levels of debt? (See Exhibits 1 and 2 ) American Home Products currently has low business risk due to the conservative nature of their business. They piggyback on first movers
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Write UP On AMERICAN HOME PRODUCTS CORPORATION: Company Overview Background Information: American Home Products Corporation (AHP)‚ is a pharmaceutical company. The company was based in Madison‚ New Jersey‚ USA. They were known for manufacturing the over-the-counter (OTC) drugs Robitussin and the analgesic Advil (ibuprofen)‚ as well as the prescription drugs Premarin and Effexor‚ which both boast over US$3 billion in sales annually. American Home Product Corporation (AHP)‚ a highly growing
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Nicolay AMERICAN LIGHTING PRODUCTS Case Study Business Logistics November 2008 TABLE OF CONTENTS Preface 3 Analysis of the situation 3 Physical flow of goods 3 Organisational structure 3 Information management: order processing and demand forecasting 4 Performance 4 Costs 5 Identification of major issues and problems 6 Incipit 6 Initial consideration: need to redesign the system 6 Generation of alternative solutions 7 First
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HOUSEHOLDS PRODUCTS (INDIA) LIMITED (D) Indore (in % of all toilet soap buyers) Total Penetration Total Buyers New Buyers Repeat Buyers Repeat Rate% 7.1 7.06 7.1 10 5.48 2.9 2.58 36.34 15.3 8.59 5.3 3.29 32.90 16.9 5.18 1.6 3.58 23.40 17.4 3.8 0.5 3.3 19.53 17.4 1.73 0 1.73 9.94 17.8 1.97 0.4 1.57 9.02 18.1 2.11 0.3 1.81 10.17 The above table depicts that the following characteristics in the 2 cities Hyderabad: a) Low penetration
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Market Analysis for case of Giant Consumer Products: The Sales Promotion Resource Allocation Decision by Yujun(Monica) Wang‚ ywang29@nd.edu; Ji(Shirley) Yang‚ jyang8@nd.edu Background As a market leader in frozen food industry‚ Frozen Foods Division (FFD) of Giant Consumer Product (GCP) has been proved very successful in the past 30 years‚ with national market share of 43% in the “Italian frozen dinners and entree offerings” subcategory. However in 2008‚ FFD were in sales trouble. The gross
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