This paper explains the U.S. financial system to CFO of Jagdambay Exports. I will explain the following questions. 1. Explain the components of a financial market and its relevance to Jagdambay Exports. Be explicit and explain to the CFO how financial markets differ from markets for physical assets and why that difference matters to Jagdambay Exports.
Current ratio enables us to examine the liquidity of the business by equating the amount of current assets to current liabilities. Although current ratio fluctuates from industry to industry, is preferred to have at least one dollar of current assets for every dollar of current liabilities. Kohl's has the advantage over J.C Penney, as Kohl's current ratio is 1.87 in comparison to J.C. Penney?s ratio of 1.67. Kohl?s Corporation can pay all of its current liability and still have a positive working capital better than J.C.
A logit regression model was used to check the probability that foreign subsidiaries would adopt capital budgeting strategies which are thought of as sophisticated given the firm specific and company specific factors. It is observed by the authors that capital budgeting process for the multinational enterprises involves many factors which are rarely encountered by domestic firms engaged in capital budgeting. It was determined that ownership arrangement and financial leverage were significant factors related to application of sophisticated capital budgeting techniques. Other significant points determined by the author was that the age of the firm, size of the assets and publicly traded securities were positively related to the sources used to determine discount rates. The authors suggested that more emphasis should be placed and more research should be done on the entire capital budgeting process to come up with thorough understanding on the relation among different variables and sophistication of the capital budgeting
Furthermore, with reference to academic literature from Beattice, Goodacre and Thomas enlightened the readers of the similarities in terms of gearing ratio, which both theorist is similar and consistent but differences occur in with the trade-off with tax shield and pecking order with the new issue of shares (McLaney, 2009). Nevertheless, the contrast between the two theorist is the Trade – Off theory argues the effective measure of tax shield for corporations for the business to be successful whilst Pecking Order theory debates that with equity the business can be effective and efficient when allowance is made for the issue of new shares. Prevalently in this matter, when shares are purchased this is an avenue for investment but on the order hand trade-off is against the allowance of new shares and avoids the trade-off of new share issues (Corporate, Finance,
Over the past decades, academics and practioners have generally come to agree that on average, value investing exhibits superior returns than growth investing (Chan and Lakonishok, 2004). Consistent with the Efficient Market Hypothesis, the explanation of this phenomenon given by Fama and French (1992) is that value stocks are fundamentally riskier, hence value investors earn higher returns as a compensation for bearing this extra risk, as risk and return are intimately related. However, as outlined in the excerpt of his book, Montier (2009) forcefully disagrees with this statement and attempts to disprove it. In this regard, this essay will examine whether value stocks carry more risk than growth stocks and analyse the reasons behind the former’s
G. (2) What are the MIRR’s advantages and disadvantages vis-à-vis the NPV? The advantage of MIRR is that it is an improved version of evaluating projects. It can be used to solve the problem of having multiple IRRs. For example, if you run IRR on a series of negative and positive cash flows , you will have two unique internal rate of return. The negative and positive cash flows will be treated equally if MIRR is used.
Barton & Gordon (1988) investigated whether “a corporate strategy perspective may complement the traditional financial paradigm in explaining capital structure”. They suggest that next to factors from the financial paradigm and firm specific variables, the capital structure at firm level may partially be explained by behavioral aspects such as managerial choice. Figure 1: Barton, S.L. & Gordon, P.J. 1988, "Corporate Strategy and Capital Structure", Strategic Management Journal, vol.
Business risk of GSAP they are going to buy: that it will not fail o Business risk= more business risk means more variability in operating profit which means a higher beta so adjust the Beta coefficient to match it with the level of financial risk incurred by the company. • Beta: Sterling’s proposed acquisition is 0.99 (beta is leveraged on the debt/equity ratio) [Exhibit 7] • Growth opportunities were limited and its business was under constant pressure • The company’s annual sales volume (in units) had increased by less than 1% per year, because of weak growth in overall demand and other company competition, which gives consumers the ability to choose other products • Business risk of buying at $265 million: relevantly low (where there
Super neutrality happens in economy when the steady state 's capital stock and consumptions are free from money expansion in long run. His illustration proved that an increase in the capital stock increases consumption and the real value of the stock of cash in two ways; it raises disposable income and its associated stock of real wealth. Hence decreseasing the rate of change of the capital stock, it raises net output and as result, accelerates capital accumulation. His model also shows that an increase in the expected rate of inflation reduces the demand for money; it therefore leads to rise in price level. Sidrauski concluded that there is no relationship between inflation and economic growth, as rises in the inflation rate does not influence the steady state capital stock.
The companies which generally pay a lesser dividend then they really can, would be underestimated by this model. Two stage Dividend Discount Model: This model tries to address the concerns which were there in the first model, this model has 2 stages one an initial high growth period and then the company stabilises to stable growth rate which is expected to continue forever. The companies which do not do well in the beginning and then attain maturity after some time may also employ this model successfully. Since this model is based on 2 stages hence the value of the stock relation has to be modified to incorporate this change, conceptually the relation can be described as under: Value of Stock=PV of dividends in extraordinary phase+ PV of terminal value. The mathematical relation would look like as