Stock and flow

A firm can finance their investments using two financing types, debt or equity. For more than half a decade, scholars have been debating about the optimal amount of debt and optimal amount of equity that maximize the market value of a firm. Capital structure is defined as the type of the funds, equity capital or debt capital, a company uses to finance its operations and investments. According to a survey among CFOs of 392 companies, only 19 percent of the companies avoid having a target capital…

returns. For instance, the average holding period for stocks in corporations has significantly dropped to less than one year as compared to about seven years in the 1960s. According to Alfred Rappaport, some executives prefer to address the concerns of the majority of shareholders while neglecting the interest of long term shareholders. It takes approximately ten years of value-creating cash flows for majority of companies to justify their stock prices. It is, therefore, extremely essential for…

Profit rate for a hotel is its net present value divided by its cost. Company Background Marriott Corporation began in 1927 with J. Willard Marriott's root beer stand. Over the next 60 years, the business grew into one of the leading lodging and food service companies in the United States. Marriott's 1987 profits were $223 million on sales of $6.5 billion. See Exhibit 1 for a summary of Marriott's financial history. Marriott had three major lines of business: lodging, contract services, and…

Firms also use unhindered and restricted stock which highly affects the value per share. Due to its illiquidity, the value of restricted stock must be lesser than the rest of the stock. Restricted stock can’t be traded until the end of the specific time frame and if the employee leaves the firm, the restricted stock is automatically forfeited. Relative valuation will not be affected as much because the illiquidity reduction of the restricted stock is minor. Chapter 12: This chapter explains the…

Net present value (NPV) The net present value method is the delegate of a discounted cash flow method and the dynamic investment appraisal (Rudolf, 2008). It stand for the value increase to the business by the investment or the project ("Why Net Present Value Leads to Better Investment Decisions than Other Criteria", n.d.). It is evaluation is an effective method of economic evaluation of investments. (Erményi, n.d.). This measure demonstrate the difference between the costs and the benefits…

Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that: IRRNX-20 = 20.34% The IRR criteria implies accepting the NX-20. c. The profitability index is the present value of all subsequent cash flows, divided by the initial investment, so the profitability index of each project is: PINP-30 = ($185,000{[1 – (1/1.15)5 ] / .15 }) / $550,000 PINP-30 = 1.128 PINX-20 = [$100,000 / 1.15 + $110,000 / 1.152 + $121,000 / 1.153 + $133,100 /…

the results on ROE? Under what conditions would such a combination make sense? d) What is the net income during the project period? e) Compute the net cash flow from the project during the first year. Problem # 3 [16]: Table 3 summarizes the financial conditions for Apple Computer Corporation. The closing stock price for Apple was $128.24 on September 26, 2008. The average number of outstanding shares was 892.11 million. On the basis of the financial data presented, compute…

Having unnecessary amounts of inventory that have no costumer demand can be both a waste cash flow and time.  Myer can reduce debt by increasing sales revenues and profitability. This can be archived by raising prices, increasing sales or reducing costs. By doing this the cash generated can then be used to pay off debt that the company…

83:1 8.24:1 Worse Boston Pizza 12.16:1 10.91:1 Better  Comment: Pizza Pizza’s cash current debt coverage decreased by 0.41 while Boston Pizza’s increased by 1.25. This ratio signifies that Boston Pizza generated 12.16$ of cash flow from operating activities to cover each dollar of current liabilities while Pizza Pizza generated 7.83$. Solvency Ratios: Debt to Total Assets 2015 2014 Comp. with Prior Year Pizza Pizza 20.13% 18.24% Worse Boston Pizza 38.03%…

Structure of Company different from Project Financing? Under company finance, in the principal stage of organization, financier searches for business evidence of the idea, however, when it comes to project financing, they search for the anticipated cash flow. The risk of the investor in company finance is much higher compared to project financing. When the company financing risk is higher it means that the return (ROI) are generally higher. Although in project financing the returns are…