Question 1: Answer: Additional funds needed (AFN) is the amount which a company must rise using the external sources in order to finance the increased requirement of assets for supporting the increased level of sales. Forecasting the financial requirements using AFN is simple as this uses simple ratios of the firm which is assumed to be constant. Accounts payable of the company generally increases with sales, in balance sheet total assets will be equivalent to total liabilities and equity, which indicates about increase in assets must be equivalent to the total liabilities and equity. Thus, increase in accounts payable will increase the amount of assets. Next is the profit element which is essential for dividend distribution or for the share repurchases. Generally, share repurchases is also considered to be like cash dividends the only difference in this is that the number of shareholders will decrease after the share repurchase and the remaining profit will be used for purchasing the assets of the company. As the remaining profit will be transferred to the retained earning which will increase the total liabilities and equity this in turn will increase the asset. In this case there is no payment of dividend but the share repurchase is a substitute for it and the retention ratio will get affected with the share repurchases too. AFN = Required increase in assets – Increase in spontaneous liabilities – Increase in retained earnings. In this case, the third part increase in retained earnings will be affected with the share repurchases which is similar to cash dividend, as the proportion of profit transferred to retained earnings will be less. In this case, the company will be familiar about the proportion of profit used for share ... ... middle of paper ... ...outflow is subtracted from the sum total of present value of cash inflow. NPV provides for information about the dollar benefit obtained by the company by accepting a project. If the company has more projects with higher NPV, then the overall value of the firm will increase. Because the return on investment will be higher this will increase the overall return earned by the investors. When company does not make any announcement about the NPV of the projects, the investor can find out the information about the cost of investment from the annual report of the company and the cash flow generated from the project. In this case, investor can use the WACC of the company as the discount rate to determine the NPV of the project by discounting the expected future earnings from the projects of the company. This will enable them in understanding about the benefit of investment.
This buyback would occur at a price of $34.88. Before the recap, there are 185.5 million shares outstanding, the market equity divided by the share price. After the recapitalization of $700 million, $1 billion, and $1.5 billion, the share price would be $39.12, $41.27, and $45.41, respectively. Because the number of shares decrease but the market equity remains constant, the share prices increases, and therefore, creates value for the shareholders. The number of shares outstanding in each scenario, will decrease by the amount of debt issued divided by the share price at the time of the buyback,
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
The following table demonstrates the PV of costs, the PV of benefits and the NPV respectively, over 5-year period for the investment:
Expanded and strengthened state private insurance companies are to be expected since more younger Texans enter the market thanks to the premium support. Texas can expect savings through more proper use of medical care, lower numbers in Medicaid, and savings from increased recipient cost sharing. Texas must refuse to comply with the new high-risk pools. There are many reasons Texas should not comply but the main reason is poor design. Currently, eighteen states have decided not to participate in these pools, Texas is undecided. Any person with a pre-existing medical disorder whom has been without insurance for six month will qualify. The law gave the Department of Health discretion in determining with conditions qualifies. Theoretically, the Department of Health could say the flu is a pre existing medical condition. If Texas does not refuse to comply with these pools it is only a matter of time before the demand will exceed the supply. A huge concern is when the funding is gone what do the state politicians do. I see two options. One, state officials will end the coverage all together and pull the plug. Two, continue to allow the program to run with the use of state tax dollars.
This object is one of the financial goals to invest properly. Marriott used discounted cash flow techniques to evaluate potential investment. It is beneficial because it is considered present time value. Projects which increase shareholder value could be formed with benchmark hurdle rates, the company can ensure a return on projects which results in profitable and competitive advantage.
Both 1984 and The Handmaid’s Tale are dystopian novels, however, these books are a lot more complex than mere portrayals of dystopia, it can be argued that they are explorations of dystopia rather than mere portrayals. In order to explore dystopia, many themes must be considered, such as; feminism, love and repression. Nonetheless, it is apparent that human characteristics are the driving point of the two novels, predominantly, the depiction of human resilience. In an imperfect world, it is important to have certain qualities which, if plentiful, it can mean success, whereas if it lacks, it can mean failure, this characteristic is resilience. The protagonists in each novel, Winston in 1984 and Offred in The Handmaid’s Tale face situations which leave them both in disarray, and both even consider suicide. The authors tentatively highlight human resilience, its limits and most importantly its strengths into the two novels.
...d a repurchase should have been listed under Cash flow from Investing and Financing respectively and not Operating activities. This deliberate effort to label such is the company’s maneuver to trick the public and the analysts, giving the impression that the company is doing well, meeting its targets and generate a huge profit out of its operations.
With improving cash flows and more reasonable debt load, the airline will be in a strong position to start paying a dividend to its shareholders towards the end of this year. Alternatively, it could also choose to resume its share repurchase program.
Discounted cash flow is a valuation technique that discounts projected cash inflows and outflows to evaluate the potential value of an investment. There are three discounted cash flow methods: Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR). The net present value discounts all cash inflows and outflows at a minimum rate of return, which is usually the cost of capital. The profitability index refers to the ratio of the present value of cash inflow to the present value of cash outflows. The internal rate of return refers to the interest rate that discounts cash inflow projections to the present to ensure that the present value of cash inflows is equivalent to the present value of cash outflows (Brown, 1992).
How to determine the most appropriate dividend policy has become one of the hottest topics in recent years as dividend decisions continue to have a significant impact on both investment and finance decisions (company’s performance overall), affecting financial managers considerations when deciding how much earnings to reinvest and how much to be paid to shareholders (Watson and Head, 2010). There are already many theories either supporting or criticising the impact of dividend decisions on a firm’s value. Litner (1956) indicated that dividends are paid by mature companies who have positive earnings instead of smaller firms and managers always target a long-term dividend payout that can be sustained. This essay will critically evaluate dividend policies relating to appropriate theories by using Vodafone as a primary example; and discuss the possible reasons why the company announced a £1.5bn share buyback program in 2012.
Making an investment towards a new project/product/company is hardly a simple process. Numerous factors including costs, benefits, time, and resources need to be taken into account before a decision to pursue a new project should be ventured into. At the end of the day prioritising projects and investing funds into projects that have the most potential towards favourable return on investment should be considered. Investment appraisal should not only be used for projects with a monetary return, it is also pertinent to use the tools where the return may not be easy to quantify such as training or development programs. Investment
Thirdly, serial borrowing and repurchase throughout several years is considered. This is essentially the financial policy the company has adopted these years. This policy is less risky measured by coverage ratios and is more acceptable to stockholders. However, UST has imminent challenges and value enhancing objectives to meet. If the company has debt capacity untapped upon, large sum repurchases avoid excessive advisory fee, negotiation time and effort, potentially credit rating charge while immediate significant tax shield benefit is made possible.
Dividend refers to the business concerns net profits distributed among the shareholders. It may also be termed as the part of the profit of a business concern, which is distributed among its shareholders. This distribution is made out of the profits remained after deducting all expenses, provision for taxation and transferring a reasonable amount to reserves. As such, dividend is part of net profit which is distributed in cash by the company to their shareholders after exclusion of the retained profit.
It has to be analyzed the company's performance, forecast fund needs and make a recommendation. The case introduces the pattern of current assets and cash flows in a seasonal company and provide and elementary exercise in the construction of the pro forma financial statements and estimation of fund needs.