Butler Lumber Company 1. Why does Mr. Butler have to borrow so much money to support this profitable business? 2. Do you agree with his estimate of the company’s loan requirements? How much will he need to borrow to finance his expected expansion in sales (assume a 1991 sales volume of $3.6 million) 3. As Mr. Butler’s financial adviser‚ would you urge him to go ahead with‚ or to reconsider‚ his anticipated expansion and his plans for additional debt financing? As the banker‚ would you
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2. TELETECH CORPORATION 1. How does Teletech Corporation currently use the hurdle rate? Currently Teletech uses a single hurdle rate for both their Telecommunications Services and Products and Services divisions. The hurdle rate is the cost of capital based on an estimate of the corporation’s WACC. 2. Please estimate the segment WACCs for Teletech (see the worksheet in case Exhibit 1). As you do this‚ carefully note the points of judgment in the calculation. Corporate Telecommunications
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Gentry’s product market is stable and the company expects no growth‚ all earnings are paid out as dividends. The debt consists of perpetual bonds. a. What are Gentry’s earnings per share (EPS) and its price per share (P0)? b. What is Gentry’s weighted average cost of capital (WACC)? c. Gentry can increase its debt by $8 million‚ to a total of $10 million‚ using the new debt to buy back and retire some of its shares at the current price. Its interest rate on debt will be 12 percent (it will have
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than the average risk of your firm’s projects? 7. Maltese Falcone‚ has not checked its weighted average cost of capital for four years. Firm management claims that since Maltese has not had to raise capital for new projects since that time‚ they should not have to worry about their current weighted average cost of capital since they have essentially locked in their cost of capital. Critique this statement. 8. Your manager just finished computing your firm’s weighted average cost of capital
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through equity and debt. It can be defined as the weighted sum of the cots of equity and the cost of debt. It determines the rate of return that a firm would receive if it invested its money in another option with a similar risk. A risky business will have a higher cost of capital than one involving less risk as the investors expect to be compensated for the greater risk. It is easy to determine the cost of debt. Cost of debt is simply the weighted rates of interest paid by the company on its debts
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TIME SERIES MODELS Time series analysis provides tools for selecting a model that can be used to forecast of future events. Time series models are based on the assumption that all information needed to generate a forecast is contained in the time series of data. The forecaster looks for patterns in the data and tries to obtain a forecast by projecting that pattern into the future. A forecasting method is a (numerical) procedure for generating a forecast. When such methods are not based upon
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1. Carrying costs include the following items‚ except: a. labor b. record keeping c. rent *d. all the above 2. Which of the following is not a cost associated with carrying inventory? *a. price discounts b. carrying costs c. ordering costs d. shortage costs 3. The level of inventory at which a new order should be placed is known as the a. lead time b. replenishment quantity *c. reorder point d. service level 4. A restaurant currently uses 62‚500 boxes of napkins
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Quality College are shown in the following table: Year 1 2 3 4 5 6 7 8 9 10 11 Registrations 4 6 4 5 10 8 7 9 12 14 15 a) Develop a 3 year moving average to forecast registrations from year 4 to year 12. Year 4 5 6 7 8 9 10 11 12 Forecast 4.6 5 6.3 7.6 8.3 8 9.3 11.6 13.6 b) Estimate demand again for years 4 to 12 with a 3 year weighted moving average in which registrations in the most recent years are given a weight of 2‚ and registrations in the other 2 years are each given a weight of 1
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Accounting Estimate • Accounting estimate – An approximation of a monetary amount in the absence of a precise means of measurement. This term is used for an amount measured at fair value where there is estimation uncertainty‚ as well as for other amounts that require estimation. PSA 540 9 The auditor shall review the outcome of accounting estimates included the prior period financial statements‚ or‚ where applicable‚ their subsequent re-estimation for the purpose of the current period. The nature
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on the yearly registration for a seminar at GIPS are shown in the following table: Year 1 2 3 4 5 6 7 8 9 10 11 Registrations (000) 4 6 4 5 10 8 7 9 12 14 15 a) Develop a 3-year moving average to forecast registration from year 4 to year 12. b) Estimate demands again for years 4 to 12 with a weighted moving average in which registration in the most recent year are given a weight of 2 and registration in the other 2 years are given a weight of 1. c) Graph the original data and the two forecasts
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