Home
Subjects
Textbook solutions
Create
Study sets, textbooks, questions
Log in
Sign up
Upgrade to remove ads
Only $35.99/year
Bu111 Final Review F2020 (ALL PEST FACTORS)
STUDY
Flashcards
Learn
Write
Spell
Test
PLAY
Match
Gravity
Terms in this set (105)
What are the three pillars of the Canadian Financial System?
1. Banks and Alternate Banks
2. Specialized Lending and Insurance Companies
3. Investment Dealers
Why go with an investment dealer?
Possible answer: If you are a larger corporation looking to go public to raise capital.
i.e. Go on the stock exchange
Why stick with a specialized lender? (2-3 reasons)
1. Don't want to release public information
2. Cant afford to lose your money
3. you're a medium sized business
Why stay with a bank/alternate bank?
Everyone goes to banks! it's the easiest and most accessible. So if you're too small to be selling equity, or perhaps you don't have as much funding as you used to.
Debt Financing vs Equity Financing, which is better and in what situation?
As a company, since debt financing requires you to pay interest, its legally binding so its more risk.
With equity financing, you are giving up and thereby diluting ownership, must share profits and control
What are Bonds?
Represents debt for the issuing government or corporation. They are a legally binding agreement with a fixed annual return.
Interpret this bond: PepsiCo 4.6 of 2035 at 94.5
Company borrowing money: Pepsico
Coupon Rate: 4.6%
Face Value: $945
Maturity Date: 15 years
What are stocks? (list 3-5 characteristics)
1. Voting rights
2. No fixed return
3. Variable return
4. Discretionary payment (dividends)
5. Higher risk than a corporations bond from a consumers perspective
Common shares vs preferred shares?
Common shares: guaranteed vote, not first in line for dividends.
Preferred: no vote, first in line for dividends
What part of the Diamond-E would determine if dividends are pushed out?
The managerial preferences/ resources
Tax effects Stocks vs Bonds
Dividends are not tax deductible, interest paid on bonds is.
If a company goes under, who gets paid first?
Those who hold the Bonds
As a consumer, bonds vs stocks?
Bonds are less risk because it is a guaranteed payment
Stocks are higher risk but can result in higher reward. Stocks are also equity so you do get a vote in the company
What is yield? (the catchphrase)
what ya made / what ya paid
What is yield (the equation)
yield = risk-free return + risk premium
Sets with similar terms
Business Chapters 1-4 Boone Kurtz
71 terms
DECA Competition Flash Cards
99 terms
All
133 terms
MGMT 4083/5083 CSR Exam 2
47 terms
Sets found in the same folder
Bu111 Final Review F2020 (Int'l Business, Strategi…
71 terms
BU111 SOS Final
79 terms
Bu111 Final Exam Review (Full Content Connection Q…
10 terms
BU111
100 terms
Other sets by this creator
BU288 Final
84 terms
BU288 F2021 - Midterm #2
81 terms
BU288- Organizational Behaviour I - Midterm #1
86 terms
BU121 Final Exam Kakoot Questions
34 terms
Verified questions
QUESTION
Here is the condensed 2016 balance sheet for Skye Computer Company (in thousands of dollars): $$ \begin{matrix} \text{ } & \text{2016}\\ \text{Current assets} & \text{\$ 2.000}\\ \text{Net fixed assets} & \text{3.000}\\ \text{Total assets} & \text{\$ 5.000}\\ \text{Accounts payable and accruals} & \text{\$ 900}\\ \text{Short-term debt} & \text{100}\\ \text{Long-term debt} & \text{1.110}\\ \text{Preferred stock (10.000 shares)} & \text{250}\\ \text{Common stock (50.000 shares)} & \text{1.300}\\ \text{Retained earnings} & \text{1.350}\\ \text{Total common equity} & \text{\$ 2.650}\\ \text{Total liabilities and equity} & \text{\$ 5.000}\\ \end{matrix} $$ Skye’s earnings per share last year were $3.20. The common stock sells for$55.00, last year’s dividend $\left(\mathrm{D}_{0}\right)$ was $2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skye’s preferred stock pays a dividend of$3.30 per share, and its preferred stock sells for $30.00 per share. The firm’s before-tax cost of debt is 10%, and its marginal tax rate is 35%. The firm’s currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skye’s beta is 1.516. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals$1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? d. If Skye continues to use the same market-value capital structure, what is the firm’s WACC assuming that (1) it uses only retained earnings for equity? (2) If it expands so rapidly that it must issue new common stock?
QUESTION
If a firm’s ROE is low and management wants to improve it, explain how using more debt might help.
QUESTION
Your firm, Agrico Products, is considering a tractor that would have a cost of $36,000, would increase pretax operating cash flows before taking account of depreciation by$12,000 per year, and would be depreciated on a straight-line basis to zero over 5 years at the rate of $7,200 per year beginning the first year. (Thus, annual cash flows would be$12,000 before taxes plus the tax savings that result from $7,200 of depreciation.) The managers disagree about whether the tractor would last 5 years. The controller insists that she knows of tractors that have lasted only 4 years. The treasurer agrees with the controller, but he argues that most tractors do give 5 years of service. The service manager then states that some last for as long as 8 years. Given this discussion, the CFO asks you to prepare a scenario analysis to determine the importance of the tractor’s life on the NPV. Use a 40% marginal federal-plus-state tax rate, a zero salvage value, and a 10% WACC. Assuming each of the indicated lives has the same probability of occurring probability =1/3), what is the tractor's expected NPV?
QUESTION
The following table gives Foust Company’s earnings per share for the last 10 years. The common stock, 7.8 million shares outstanding, is now (1/1/17) selling for $65.00 per share. The expected dividend at the end of the current year (12/31/17) is 55% of the 2016 EPS. Because investors expect past trends to continue, g may be based on the historical earnings growth rate. (Note that 9 years of growth are reflected in the 10 years of data.)$ $$ \begin{matrix} \text{Year} & \text{EPS} & \text{Year} & \text{EPS}\\ \text{2007} & \text{\$ 3.90} & \text{2012} & \text{\$ 5.73}\\ \text{2008} & \text{4.21} & \text{2013} & \text{6.19}\\ \text{2009} & \text{4.55} & \text{2014} & \text{6.38}\\ \text{2010} & \text{4.91} & \text{2015} & \text{7.22}\\ \text{2011} & \text{5.31} & \text{2016} & \text{7.80}\\ \end{matrix} $$ $The current interest rate on new debt is 9%; Foust’s marginal tax rate is 40%; and its target capital structure is 40% debt and 60% equity. a. Calculate Foust’s after-tax cost of debt and common equity. Calculate the cost of equity as$$\mathrm{r}$_${\mathrm{s}}$=$\mathrm{D}$_{1} / $\mathrm{P}$_{0}+$\mathrm{g}$$. b. Find Foust’s WACC.
Other Quizlet sets
Salivary Gland Pathology
13 terms
Unit Test Review
15 terms
HIST 201 BYU Ch.11
60 terms
Milady Esthetics Chapter 4 Disorders & Diseases of…
111 terms
Related questions
QUESTION
Strict liability requires a showing that the defendant breached a duty of care
QUESTION
True or False? Professional sports teams in the U.S. can jointly negotiate and conspire in the sales of TV broadcast rights without fear of antitrust prosecution.
QUESTION
North American firms are lagging their European counterparts in the implementation of "green practices" in manufacturing and other supply chain activities.
QUESTION
A major pharmaceutical company is considering replacing meetings with teleconferences and substituting regional meetings for national meetings. This consideration is in response to which factor affecting marketing in the travel environment?