A growing company with positive net profit

Assignment Help Finance Basics
Reference no: EM131055583

1. Comment the following statement: ”Direct bankruptcy costs such as lawyer fees are substantial. Therefore, a corporation should take as little debt as possible to avoid potential direct costs of bankruptcy.

2. Comment the following statement: ”A growing company with positive net profit does not need external financing.

3. Consider a medium-sized manufacturing company in Finland with 20 million in sales and 2 million in net profit with tangible assets (e.g., machinery) worth of 5 million and accounts receivable and inventories totaling 5 million.

a. What are realistically the potential sources of financing for such a company? 

b. What if the company grows into having sales of 3 billion, what are the potential additional sources of financing?

4. Consider an all equity-financed company with 10,000 shares trading at 5€. The company announces a rights issue in which one new share can be subscribed at 3€ for every four shares held. Assume no transaction costs, no taxes, and no asymmetries of information.

a. What is the price of one share after rights issue?

b. What is the value of one subscription right attached to one share?

c. How does shareholder wealth change in the rights issue?

d. Consider a shareholder who owns 10% of the company. Assume that this shareholder wants to keep her euro-value of the investment into the company constant. Outline a trading plan that achieves this goal.

5. An all equity-financed company A has 5000 shares outstanding at 1€ per share. It wants to acquire another company B with 400 shares trading at 2€ share. Synergies are estimated at NPV value of 200€. Assume no transaction costs, no taxes, and no asymmetries of information.

a. What is the maximum price in cash A could offer for shares in B? Assume that shareholders and managers are rational and do not want to accept a losing deal

b. What is the maximum number of shares A could offer for every share in B? 

c. Suppose A announces acquisition of B at cash price of 2.3€ per share. What happens to share price of B?

d. At the announcement of acquisition at 2.3€, what happens to the share price of A?

Reference no: EM131055583

What is the internal growth rate the firm can achieve

What is the internal growth rate the firm can achieve without any external financing? Currently, the firms sales =$4,700, net income is $420, total assets=7890, dividends=12

Two grades of gears for industrial machinery

Precision Machinists makes two grades of gears for industrial machinery: standard and heavy duty. The process requires two steps. Step-1 takes 8 minutes for the standard gea

Deal wih the pollution tax problem

Your boss believes the company's power plant is producing too much air pollution on a typical island. Your boss gives you three choices for dealing with this problem because

How does a leveraged lease differ from a nonleveraged lease

How does a leveraged lease differ from a nonleveraged financial lease? What type of firm or organization is most likely to take advantage of the leveraged lease financing opti

Calculate next year ending receivables balance

Receivables are currently $15M on credit sales of $120M Credit sales are expected to grow by 20% next year. Calculate next year's ending receivables balance (make calculatio

What is the payback period of the ice cream cart

It will cost $2,800 to acquire a small ice cream cart. Cart cash flows are expected to be $2,000 a year for three years. After the three years, the cart is expected to be wo

What is the firms weighted average cost

The General Store has a cost of equity of 15.8 percent, a pre-tax cost of debt of 7.7 percent, and a tax rate of 32 percent. What is the firm's weighted average cost of capi

Research analyst working for a top portfolio

THE SITUATION: You are a Research Analyst working for a top portfolio management firm, "UMUC Portfolio Management" (in no way affiliated with the University of Maryland Univer


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd