Case Study: Hill County Snack Food Co. 1.1 How much business risk does Hill County face? Hill County operates in a very competitive market where new potential entrants can be a threat to its operation either through lower price offering or lower production cost. Competition from peer companies has significant effect on its operation‚ because Hill County is price taker in the market‚ that is‚ increase in prices is not one of the choices it can implement. Also‚ due to the fact that its profitability
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percent of earnings. In the example‚ we assume that the company will have a 15 percent ROE regardless of which payout policy it follows‚ so with a book value per share of $30‚ EPS will be $4.50 under all payout policies.1 Given an EPS of $4.50‚ dividends per 0.15($30) share are shown in Column 3 under each payout policy. Under the assumption of a constant ROE‚ the growth rate shown in Column 4 will be g (% Retained)(ROE)‚ and it will vary from 15 percent at a zero payout to zero at a 100 percent payout
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years. [pic] The company has achieved during the last 3 years an average RoE of 28% supported by strong efficiency‚ financial leverage‚ and a moderate profitability ratio given the nature of the business. This has resulted in a positive trend of the share price that delivered 3 year returns of 44% from 2009. The upward trend in RoE that peaked in 2011 reaching 30.6% reversed in 2012 that closed with a RoE of 24.5%. The RoE drop of c. 600 bps in 2012 compared to 2011 is explained by a reduction in
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H.J. Heinz: Estimating the cost of capital in uncertain times 1. What is WACC? What is its purpose? 2. What were the yields on the two representative outstanding Heinz-debt issues as of the end of April 2010? What were they one year earlier? 3. What was the WACC for Heinz at the start of fiscal year 2010? What was the WACC one year earlier? Should you consider short-term debt? How reasonable are your interest rates for the firm? For the WACC? What is the market risk premium? What is Beta? How
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that involves issuing debt and repurchasing equity. UST has a long history of a conservative debt policy. However‚ in 1998 they reinstituted their share buyback program. This means that they intended to issue up to $1 billion in debt in order to repurchase equity. Their intentions in repurchasing equity are to maximize earnings per share and receive a tax shield through their high amount of debt issuance. 2. Describe the pros and cons of the recapitalization from the perspective of the tradeoff
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Since dividends are not an obligation but they are a benefit for shareholder satisfaction‚ we have a range over a 5 year period of costs between 11.5 million and 30.4 million. These values take into consideration many assumptions (g= 8%‚ b = 0.80 and ROE= 10.55%) Total 5 year dividend | 18.82 million | Audit fee (1M per year assumption) | 5 million | Fees/ Bridge Financing | 6.56 million | Total | 30.380 million | Range | 11.5 - 30.4 million |
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Principles of Corporate Finance Comprehensive Case Questions Tire City‚ Inc. 1. Evaluate Tire City’s financial health. How well is the company performing? 2. Based on Mr. Martin’s prediction for 1996 sales of $28‚206‚000‚ and for 1997 sales of $33‚847‚000 and relying on the other assumptions provided in the Tire City case‚ prepare complete pro forma forecasts of TCI’s 1996 and 1997 income statements and year-end balance sheets. As a preliminary assumption‚ assume any new financing required will
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CHAPTER 16 FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY Answers to Concepts Review and Critical Thinking Questions 1. Business risk is the equity risk arising from the nature of the firm’s operating activity‚ and is directly related to the systematic risk of the firm’s assets. Financial risk is the equity risk that is due entirely to the firm’s chosen capital structure. As financial leverage‚ or the use of debt financing‚ increases‚ so does financial risk and‚ hence‚ the overall
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Assignment 1 Executive Summary The purpose of this report is to evaluate the performance of both Hong Leong Bank and its peer bank RHB Bank for the financial year ended in 2010. The DuPont model is used to provide the information on the bank’s liquidity‚ profitability‚ efficiency and leverage status that allows financial analyst to evaluate on the performance of the bank as a result of the changes of these factors. A trend comparison for year 2010‚ 2009 and 2008 is conducted and evaluated
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per share growth at 1.65% 2) Dividend per share grows at 1% 3) Keep dividend per share constant at $2.46 4) Cut dividend by 30% and repurchase 10 million shares each year after the cut Recommendations: We recommend FPL to cut dividend by 30% in order to free up more cash to facilitate its growth and fight the upcoming competitions‚ and repurchase 10 million shares each year after the cut to offset the negative signaling impact. Analysis: 1) Industry Overview The generation‚ transmission
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