Module 4 - SLP
capital structure and dividends
Analyzing the Dividend Policies of Various Companies
Please recall the company that you selected for the Module 1 SLP. Please review the company's dividends over the past three years. Then, answer the following questions in Word (except for the Excel portion specifically noted):
What has occurred with company's dividend payout, dividend yield, and dividend per share over the past three years? Do you have any explanations for what has occurred?
How does your selected company's dividend payout, dividend yield, and dividend per share compare to other companies in its industry? Has the company's dividend strategy been similar to other companies in its industry?
You are now to use Excel and plot your selected company's earnings and dividends over the past three years. Do you notice any patterns?
What is your estimate for your company's dividend per share next year? Please justify why you made that decision.
Now locate a company that has reduced or eliminated its common stock cash dividend over the past year. Why did the company reduce or eliminate its dividend? What has happened to the company's stock price over the year?
SLP Assignment Expectations
You are expected to:
- Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
- Answer the SLP Assignment question(s) clearly and provide necessary details.
- Write clearly and correctly-that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
- Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.
- Type and double-space the paper.
- Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, it's important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.
Module 4 - Case
capital structure and dividends
Analyzing a Firm's Capital Structure
Assume that a company has $10 million in assets (where the market value of the assets is equal to the book value of the assets) and no debt. The company's marginal tax rate is 35% and has 500,000 shares outstanding. The company's earnings before interest and taxes (EBIT) is $3.88 million. The firm's stock price is $27 per share and the cost of equity is 11%.
The company is thinking of issuing bonds and simultaneously repurchasing a portion of its stock. If the company changes its capital structure from no debt to 25% debt based on market values, the firm's cost of equity will increase to 13% because of the increased risk. The bonds can be sold at a cost of 9%. The firm's earnings are not expected to grow over time. All of its earnings will be paid out as dividends.
Answer the following questions:
a. What impact will this utilization of this debt have on the value of the company?
b. What's going to be the company's EPS after the recapitalization?
c. What's going to be the company's new stock price?
d. The $3.88 million EBIT discussed above is determined from this probability distribution:
|
Probability
|
EBIT ($)
|
|
0.05
|
- 1 million
|
|
0.25
|
2.3 million
|
|
0.4
|
4 million
|
|
0.25
|
5.8 million
|
|
0.05
|
6.1 million
|
What's the times interest earned ratio at each probability level?
Assignment Expectations
You are expected to:
- Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
- Answer the Case Assignment question(s) clearly and provide necessary details.
- Write clearly and correctly-that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
- Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.
- Type and double-space the paper.
- Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, it's important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.
Module 5 - SLP
Short-Term Financial Management
Cash Management Techniques
It's important for firms to have strong cash management techniques. Please recall the company that you selected for the Module 1 SLP Assignment.
Please write an essay in Word that addresses the following questions:
1. Would you estimate that your selected company has an effective cash management strategy? Why or why not? Please justify your decision.
2. In general, what are the four main factors in a company's credit policy? Please name and describe each of these factors.
3. How would a tight short-term financial management policy compare to an easy short-term financial management policy?
4. What are some techniques that companies can use to monitor accounts receivable?
5. What's the maturity matching approach to financing assets?
6. What are the risks of financing long-term assets with short-term liabilities?
7. What are the risks of financing short-term assets with long-term liabilities?
SLP Assignment Expectations
You are expected to:
- Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
- Answer the SLP Assignment question(s) clearly and provide necessary details.
- Write clearly and correctly-that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
- Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.
- Type and double-space the paper.
- Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, it's important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.
Module 5 - Case
Short-Term Financial Management
Cash Conversion Cycle
This assignment contains two parts: Part I and Part II.
Answer these questions in Word and show your work:
Part I
Assume that a company has $20 million in revenue and its cost of goods sold is 70% of its sales. Additionally, the firm has $3 million of inventories, $2 million in payables, and $2 million in receivables. What's the firm's cash conversion cycle (CCC)? What does this indicate? Do you think that the company should improve its CCC? If so, what are some ways that it can do that? If not, why do you think that's the case?
Part II
Assume that a firm has a payables deferral period of 40 days, an inventory conversion period of 62 days, and an average collection period of 29 days.
1. What's the firm's cash conversion cycle?
2. Assume that all of the firm's sales are on credit. If the firm has annual sales of $4 million, what's the accounts receivable investment
3. How many times a year will the firm turn over its inventory?
Assignment Expectations
You are expected to:
- Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
- Answer the Case Assignment question(s) clearly and provide necessary details.
- Write clearly and correctly-that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
- Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.
- Type and double-space the paper.
- Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, it's important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.
Module 5 - Background
Short-Term Financial Management
Managing Working Capital Podcast. (2014). Pearson Learning Solutions, New York, NY.
Managing Working Capital Interactive Tutorial. (2014). Pearson Learning Solutions, New York, NY.
A corporation's working capital management process entails determining the optimal levels for accounts receivable, inventory, cash, and marketable securities and then financing those current assets in the lowest-cost way.
To see how well a company is managing its working capital management, one can look at the company's cash conversion cycle (CCC). The CCC measures the time period from buying or making inventory, holding on to it for awhile, and then selling it and getting cash. The lower the CCC the better. Technically, the CCC is calculated as the inventory conversion period plus the average collection period minus the payable deferral period. If a company's CCC is too high, it can look to sell its merchandise faster, look to get its customers to pay its bills faster, and/or delay the amount of time to pay suppliers.
Current assets can be financed through a variety of ways, including accounts payable, bank loans, long-term debt, common equity, and bank loans. Under a maturity matching approach financing policy, fixed assets and the permanent current assets are financed with long-term capital, but temporary current assets are financed with short-term debt. With an aggressive financing policy, some of the permanent assets are financed with short-term debt. Under an aggressive financing policy, all of the permanent assets are financed with long-term capital. Long-term debt is also used to meet seasonal needs. There's no optimal working capital financing policy for all firms.
Review these website links on working capital issues:
MyAccountingCourse.com (2014). Cash conversion cycle. Retrieved June 2014 from https://www.myaccountingcourse.com/financial-ratios/cash-conversion-cycle
StudyFinance.com. (2014). Working capital management. Retrieved June 2014 from https://www.studyfinance.com/lessons/workcap/