The Rufus Corporation has 125 million shares outstanding and analysts expect Rufus to have earnings of $500 million this year. Rufus plans to pay out 40% of its earnings in dividends and they expect to use another 20% of their earnings to repurchase shares. If Rufus’ equity cost of capital is 15% and Rufus’ earnings are expected to grow at a rate of 3% per […]
3. Why is the liabilities section of the balance sheet of primary significance to bankers? As a lender of money, the banker is interested in the priority his/her claim has on the company”s assets relative to other claims. Close examination of the liability section and the related footnotes discloses amounts, maturity dates, collateral, subordinations, and restrictions of existing contractual obligations, all of which are important […]
If you had to decide whether or not to lend money to a company, would you use the market value of its assets or the book value? Why?(A) Market value; it is the only method consistent with GAAP.(B) Market value; it tells you how much the company could sell the assets for if it has to re-pay the debt.(C) Book value; it tell you how […]
1. In a tranfer that qualified under sec. 351, George transferred equipment worth $750,000 (adjusted basis $400,000, depreciation recapture potential $75,000). The equipment was subject to a $150,000 loan, which the transferee corporation assumed as part of this transaction. In exchange, George received (1) CS of the transferee corporation worth $425,000, (2) promissory notes of the transferee corporation worth $100,000 and (3) cash of $75,000 (i.e., total consideration […]
NONCONSTANT GROWTH STOCK VALUATION (PAGE 302) For many companies, it is unreasonable to assume that dividends grow at a constant growth rate. Hence, valuation for these companies proves a little more complicated. The valuation process, in this case, requires us to estimate the short-run nonconstant growth rate and use it to predict near-term dividends. Then, we must estimate a constant long-term growth dividend growth rate. […]
$1,248,500 On a master budget for January, February, and March of 2018, management gathers the following information. The company’s single product is purchased for $30 per unit and resold for $59 per unit. The expected inventory level of 5,250 units on December 31, 2017, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are: January, […]
Using the S&P Analysts’ handbook or other source, plot the last ten (10) years history of the Operating Profit margin of the S&P Industrials Index, or other aggregate market series, and that of the industry which represents the largest component of your portfolio. Calculate the correlation coefficient. Determine the nature of the correlation between the two (2) series.2.Prepare a table listing the variables that influence […]
Tesla Motors shares were initially offered to investors at $17. Three years later, the price was over $90 per share. What was the compound annual return that Tesla investors owned over this period? Given that Tesla paid no dividends and was not expected to start paying dividends anytime soon, what method might analysts have used to value the company’s shares in 2013? The company sold […]
“On July 1, 20X0, the beginning of its fiscal year, the trial balance of the General Fund of the City of St. Bea was as follows:Cash 20,000Tax Receivable–Delinquent 120,000Allowances for Uncollectible Delinquent Taxes 12,000Interest and Penalties Receivable on Taxes 8,000Allowance for Uncollectible Interest and Penalties 800Due from Other Funds 28,000Vouchers Payable 87,200Fund Balance Reserved for Encumbrances 16,000Fund Balance–Unreserved, Undesignated 60,000176,000 176,000Required:Prepare journal entries that would […]
Total 1,808,544 1,808,544 The following additional information relating to GPA Ltd. is also available: Stock at 31 March 2017 was valued at $59,200. Machinery costing $43,600, which $28,280 depreciation had been provided, was sold for $21,560 during the year. This transaction has not been recorded because the proceeds of sale has not yet received at year end. There was no purchase of fixed assets during […]
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