1. Assess the business and financial risks of UST Business risks are relatively low: Main risk is that UST has undiversified business‚ it basically relies on one product However its main product is noncyclical‚ it carries little systematic risk Imminent increase in excise tax on smokeless tobacco (however‚ tobacco demand is considerably inelastic) It is the (sub)industry leader (market share >85%)‚ industry is an oligopoly which implies high barriers for potential competitors to enter the market
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Policy at UST Inc. 1) UST is the dominant producer of moist smokeless tobacco‚ or moist snuff‚ controlling approximately 77% of the market. UST has been one of the most profitable companies in corporate America with low debt compared to other companies in the tobacco industry and the company has been recognized by Forbes in terms of profitability by achieving return of capital of 92.1%. Price elasticity of its products is also important while evaluating. Smokeless tobacco industry has a relatively
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Assignment -1 Spring 2013 Cost of Capital Q1: Percy Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company’s outstanding bonds is 9% and the company tax rate is 40%. Percy’s CFO has calculated the company’s WACC as 9.96%. What is the company’s cost of common equity? Q2: Tunney Industries issued preferred stock at a price of $47.50 a share. The issue is expected to pay a constant annual dividend of $3.80 a share. What is the company’s cost of preferred
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business risks associated with UST Inc. include but are not limited to: litigation‚ poor diversification of product lines‚ resignation of two key executives‚ lack of innovation and timeliness of new products‚ and erosion of market share due to competitors. Aside from the risks‚ UST has several key attributes that set them apart from other companies. UST continues to be a top company relative to the smokeless tobacco industry and other industries in terms of profitability and has significantly less pending
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CHAPTER 14: DISTRIBUTIONS TO SHAREHOLDERS: DIVIDENDS AND SHARE REPURCHASES 1. The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm’s stock price. a. True b. False ANSWER: True 2. Other things held constant‚ the higher a firm’s target payout ratio‚ the higher its expected growth rate should be. a. True b. False ANSWER: False RATIONALE: The higher the payout ratio‚ the less of its earnings the firm reinvests in the business
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INCOME TAXES AND DIVIDEND POLICY The income taxes of stockholders should affect the dividend policy of a firm. To help you understand these tax implications‚ we shall first examine the importance of tax deferral and then show the impact of having two different tax rates‚ one for ordinary income and one for capital gains. Rational stockholders should value a stock based on the after-tax returns they expect to receive from owning it. The tax status of the return depends on the form in which it is
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1. What are the primary business risks associated with UST Inc.? What are the attributes of UST Inc.? Evaluate from the viewpoint of credit analyst or bond holder. UST Inc. is a smokeless tobacco company with a long tradition and a recognizable brand name. A strong brand name can have lots of associations with high quality‚ revenues‚ soundness‚ growth‚ etc. But‚ this is one of the characteristics that can be like two edged sward. On one side‚ company with long tradition is expected to
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investors pay on dividend income. Currently‚ any money an investor receives when a stock she owns pays a dividend to its investors is added to her total income at tax time. So dividend income is treated the same way‚ and is taxed at the same rate‚ as income from working. If the Bush plan becomes law‚ dividend income will no longer be added to an investor’s total income. As a result the dividends become exempt from taxation. The exact details of the plan are not currently known‚ because it has not been debated
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Equity Valuation Lecture Map Definitions of Value Book value‚ Liquidation value‚ Intrinsic value‚ Market value Dividend discount models Constant-growth Multi-stage growth Value Metrics and Determinants of Value Current earnings and growth P/E Lesmond 1 Book Value of Equity The firm’s equity value‚ or stock value‚ is stated right on the firm’s books This is NOT the market value of equity Book value per share of Equity is the value of common equity on the books‚ divided
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India China - demographic dividend.txt Eye On: Demographics: India and China: Twin Stories of Progress? Posted by Adrienne Villani on September 24‚ 2010 This article was originally published in our new‚ redesigned fortnightly e-magazine. Sign up today! Three decades from now‚ China and India will have vastly divergent demographics. Demography underpins every segment of what is termed development – it drives the choices people make in their everyday lives‚ whether a country’s resources can sustain
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