1) What is meant by the term “distribution policy”? How have dividend payout versus stock repurchase changed over time? Distribution Policy involves three issues. 1) What fraction of earnings should be distributed? 2) Should the distribution be in the form of cash dividends or stock repurchases? 2) Should the firms maintain a steady‚ stable divided growth rate? The dividend payout versus stock repurchase has changed dramatically during the past 30 years. First off the total cash distributions as
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Corporate Financing Decision: 0 NPV transaction (not always 0 NPV‚ subsidy= pos npv‚ creating new security) Efficient Capital Markets: price reflects available info‚ investors receive fair price when interact‚ firms get fair price for securities it sells Pt= Pt-1 + Expected $ return given risk + Random price error Rt= E(Rt) + Error t (abnormal return‚ efficient mkt makes unpredictable) Rt= Rft + B(Rmt – Rft) Weak: past market info‚ weak form efficiency‚ tech analysis will fail Semi-Strong:
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Upstate Canning Case Giacomo Melegari A. Conclusion/Statement of Case Situation: Based on my results Mr. Shields’ should accept Mr. Fordham’s proposal for the acquisition of Upstate Canning Company. The $35‚000 comes from Mr. Fordham’s savings and the $65‚000 additional investment from associates. The $300‚000 loan allows for Mr. Shields to have time to pay Mr. Fordham in full. The Bond repayment schedule offered by Mr. Fordham to Shields is additionally an excellent
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First and foremost‚ Target’s ROE ratios for the last five years are experiencing ups and downs; it had lowest ROE ration of -0.108 for the period ending in 1/31/15‚ and the ROE was 0.25 for the period ending in 1/31/16. Except for the year ending in 1/31/15‚ Target generated profit in the last five years‚ and the increasing trend of ROE indicated that Target was succeeded in increasing efficiency without needing more capital. Although we cannot know from the analysis what lead to the great drop in
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the amount of earnings retained by the firm does not affect market price or the P/E. D. the firm can increase market price and P/E by retaining more earnings and increasing the growth rate. E. None of the options If required return and ROE are equal‚ investors are indifferent as to whether the firm retains more earnings or increases dividends. Thus‚ retention rates and growth rates do not affect market price and P/E. 23) The present value of growth opportunities (PVGO) is equal to
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Analysis of Financial Statements Ratio Analysis DuPont Equation Potential Misuse of ROE Use Financial Ratios to performance Uses and Limitations of Financial Ratios • Ratios help us to evaluate financial statements. Ratios are used to make comparisons. • There are many different ratios‚ with different ones used to examine different aspects of the firm’s operations. • Ratios can be divided into 5 categories: 1. 2. 3. 4. 5. Liquidity ratios‚ Asset management ratios‚ Debt management ratios‚ Profitability
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Chapter 5 Carrefour S.A. Teaching Note Version: March 2007 Introduction The Carrefour case is a financial analysis case. Carrefour S.A. is one of the world’s largest retailers. During the first half of the 2000s‚ the company’s share prices steadily declined‚ despite the fact that the company reported above-average returns on equity. Students are asked to analyze Carrefour’s financial statements and segment data to find explanations for the company’s poor share price performance and to make recommendations
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Apparel‚ Accessories‚ and Luxury Goods 5. The common stock has a $0.0003 1/3 par value. 6. Under Armour has no preferred stock. 7. ROE for the last three years using average common equity in the denominator: 2013 2012 2011 ROE 0.174 0.177 0.171 Calculation 8. We cannot determine whether the firm is creating value for its stockholders based on the trend in ROE alone. This figure must be compared with the cost of equity capital in order to make a determination on value creation. However‚ just
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emphases affect the ratios they focus on? Credit analyst for extending loans Stock analysts for buy and sell recommendations Managers to help manage the finances of the company Q-6 If a firm’s ROE is low and management wants to improve it‚ explain how using more debt might help. If the ROE is low you might borrow more money to increase your business. This is called financial leverage. Q-10 Indicate the effects of the transactions listed in the following table on total current assets‚
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assuming that the firm will have a constant dividend growth ratio of 8%‚ if we assume that the firm will have ROE (return on asset) of 15% per year‚ expected EPS (earns per share‚ E1) of $2.50‚ and the dividend payout ratio of 60%. Will you buy or sell the stock? D1 = E1 * d D1 = $2.50 * .6 ( D1 = $1.50 g = ROE * b g = .15 * .4 ( g = .06 V0 = D1/ (k – g)
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