CHAPTER 13 CAPITAL STRUCTURE AND LEVERAGE (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Conceptual Easy: Business risk Answer: c Diff: E [i]. A decrease in the debt ratio will generally have no effect on . a. Financial risk. b. Total risk. c. Business risk. d. Market risk. e. None of the above is correct. (It will affect each type of risk above.) Business risk Answer: d Diff: E [ii]. Business risk
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Business Risk‚ Financial Risk and Leverage 1. The data relating to two companies are as given below: Company A Company B Equity Capital Rs 600‚000 Rs 3‚50‚000 12% Debentures Rs 4‚00‚000 Rs 6‚50‚000 Output (units) per annum 60‚000 15‚000 Selling price/unit Rs 30 Rs 250 Fixed Costs per annum Rs 7‚00‚000 Rs 14‚00‚000 Variable Cost per unit Rs 10 Rs 75 You are required to calculate the Operating leverage‚ financial leverage and Combined
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Chapter 3 Chapter 4 Book Value Per Share (BVPS) = Total Book Equity / Number of Shares Profit Margin (PM) = Net Income / Sales Net Operating Working Capital (NOWC) = Current Assets - (Current Liabilities - Notes Payable) Equity Multiplier = Assets / Equity Free Cash Flow (FCF) = EBIT (1 -T) + Dep. - (Capex + ∆NOWC) Total Asset Turnover (TATO) = Sales / Total Assets Market Value of Equity = Stock Price x Number of Shares - Total Book Value of Equity Total Amount of Debt
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Initial net working capital = .05($22‚400‚000) = $1‚120‚000 So‚ the cash flow today is: Equipment Land NWC Total –$85‚000‚000 –7‚000‚000 –2‚915‚000 –$94‚915‚000 Now we can calculate the OCF each year. The OCF is: Sales VC FC Dep. EBT Tax NI + Dep. OCF Year 1 $58‚300‚000 19‚220‚000 4‚300‚000 12‚155‚000 $22‚625‚000 8‚597‚500 $14‚027‚500 12‚155‚000 $26‚182‚500 Year 2 $63‚700‚000 21‚080‚000 4‚300‚000 20‚825‚000 $17‚495‚000 6‚648‚100 $10‚846‚900 20‚825‚000
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2011 | 2010 | Sales | $3‚550‚000 | $3‚340‚000 | Cost of Goods Sold | 1‚750‚000 | 1‚662‚000 | Other Expenses | 276‚500 | 220‚000 | Depreciation | 80‚000 | 66‚000 | EBIT | $1‚443‚500 | $1‚392‚000 | Interest Expense | 243‚000 | 306‚500 | EBT | $1‚200‚500 | $1‚085‚500 | Taxes (35%) | 420‚175 | 379‚925 | Net Income | $780‚325 | $705‚575 | | | | Dividends | $108‚000 | $74‚000 | Fowler’s Flower Shop Balance Sheet December 31‚ 2010 & December 31‚ 2011 Assets | 2011 | 2010
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Cost of goods sold (3‚250‚000) (2‚864‚000) Other expenses ( 430‚300) ( 340‚000) Depreciation ( 20‚000) ( 18‚900) Total operating costs $3‚700‚300 $3‚222‚900 EBIT $ 149‚700 $ 209‚100 Interest expense ( 76‚000) ( 62‚500) EBT $ 73‚700 $ 146‚600 Taxes (40%) ( 29‚480) ( 58‚640) Net income $ 44‚220 $ 87‚960 EPS $0.442 $0.880 Statement of Cash Flows (2010) Operating Activities Net income $ 44‚220 Other additions (sources o f cash) Depreciation
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Rustomjee Business School Rustomjee Business School Class M 14‚ Sem3 Date: 15th November‚ 2013 Subject: Advance Financial Mgmt. Maximum marks: 60 ‚ Time: 3 Hours Sec A Answer any FIVE questions. All questions carry equal marks. Q1 Explain the important functions of either Credit Rating Information Services of India Ltd. (CRISIL) or Information and Credit Rating Services Ltd. (ICRA). Q2 The Balance Sheet of International Trade Ltd. as on 31st March‚ 2008 is as under Liabilities Rs.(Lacs)
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People who live in this society all want to be a part of the higher status with more income and access to the wealthier products. The traditional way of earning this lifestyle is through gaining a high education level‚ which would be college. Everyone knows that college can be so expensive that it drives a person away from reaching their full potential. Money has controlled how colleges set their standards for admission into their school. There are people who cannot afford to attend a four year
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Evidence-based practice (EBP) is an interdisciplinary approach to clinical practice that has been gaining ground following its formal introduction in 1992. It started in medicine as evidence-based medicine (EBM) and spread to other fields such as dentistry‚ nursing‚ psychology‚ education‚ library and information science and other fields. Its basic principles are that all practical decisions made should 1) be based on research studies and 2) that these research studies are selected and interpreted
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A performance report and budgets allows decision makers to clearly see the performance trade offs between alternative spending plans‚ and‚ thus‚ make more informed resource allocation decisions. Budget and performance reports can be used in decision making in various ways. Here Rodolfo has to decide which option is good for his company‚ manufacturing computer controlled laser lathe (high tech method) ‚ representing manufacturer in Norway or selling coated furniture (current method). If
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