A financial ratio by itself tells us little about a company since financial ratios vary a great deal across industries. There are two basic methods for analyzing financial ratios for a company: time trend analysis
DQ1 A financial ratio by itself tells us little about a company since financial ratios vary a great deal across industries. There are two basic methods for analyzing financial ratios for a company: time trend analysis and peer group analysis. Why might each of these analysis methods be useful? What does each tell you about the company’s financial health?
DQ2 What does liquidity measure? Explain the trade-off a firm faces between high liquidity and low liquidity levels.
FIN341 Corporate Financial Management
Week 2 Discussion
DQ1 List the three assumptions that lie behind the Modigliani-Miller theory in a world without taxes. Are these assumptions reasonable in the real world? Explain.
DQ2 Is there an easily identifiable debt–equity ratio that will maximize the value of a firm? Why or why not?
FIN341 Corporate Financial Management
Week 3 Discussion
DQ1 What is the difference between bank loans and commercial paper? Are there specific situations when companies should resort to using commercial paper?
DQ2 Loftis Manufacturing, Inc., has recently installed a just-in-time (JIT) inventory system. Describe the effect this is likely to have on the company’s carrying costs, shortage costs, and operating cycle.
FIN341 Corporate Financial Management
Week 4 Discussion
DQ1 Give an example of a personal finance experience you have had which involved the concept of the time value of money. What have you learned?
DQ2 How can a corporation best take advantage of the concept of the time value of money?
FIN341 Corporate Financial Management
Week 5 Discussion
DQ1 The required rate of return in valuing an asset is based on the risk involved. Identify two types of risk that affect investments and briefly describe them.
DQ2 Why does the value of a share of stock depend on dividends?
A substantial percentage of the companies listed on the NYSE and the NASDAQ don’t pay dividends, but investors are nonetheless willing to buy shares in them. How is this possible given your answer to the previous question?
Referring to the previous questions, under what circumstances might a company choose not to pay dividends?
FIN341 Corporate Financial Management
Week 6 Discussion
DQ1 Should a company use its cash flow or its earnings as a basis for capital budgeting decisions? Explain.
DQ2 How does technological change influence the planning for capital spending decisions?
FIN341 Corporate Financial Management
Week 7 Discussion
DQ1 How does the stockholder, in general, feel about the relevance of dividends?
DQ2 What are the basic advantages to the corporation of issuing convertible securities?
FIN341 Corporate Financial Management
Week 8 Discussion
DQ1 What is the most likely explanation for the use of preferred stock from a corporate viewpoint?
DQ2 Explain the difference between a call option and a put option. Would you use options in your personal investment portfolio?
FIN341 Corporate Financial Management
Week 1 Case Study
CASH FLOWS AT EAST COAST YACHTS
Because of the dramatic growth at East Coast Yachts, Larissa decided that the company should be reorganized as a corporation. Time has passed and, today, the company is publicly traded under the ticker symbol “ECY”.
Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning and also to evaluate the company’s financial performance. Dan graduated from college five years ago with a finance degree, and he has been employed in the treasury department of a Fortune 500 company since then.
EAST COAST YACHTS
2017 Income Statement
Sales $611,582,000
Cost of goods sold 431,006,000
Selling, general, and administrative 73,085,700
Depreciation 19,958,400
EBIT $ 87,531,900
Interest expense 11,000,900
EBT $ 76,531,000
Taxes 30,612,400
Net income $ 45,918,600
Dividends 17,374,500
Retained earnings $ 28,544,100
The company’s past growth has been somewhat hectic, in part due to poor planning. In anticipation of future growth, Larissa has asked Dan to analyze the company’s cash flows. The company’s financial statements are prepared by an outside auditor. Nearby you will find the most recent income statement and the balance sheets.
Larissa has also provided the following information. During the year, the company raised $40 million in new long-term debt and retired $22.6 million in long-term debt. The company also sold $24.2 million in new stock and repurchased $35.64 million. The company purchased $59.5 million in fixed assets, and sold $6,718,200 in fixed assets.
East Coast Yachts Balance Sheet
Larissa has asked Dan to prepare the statement of cash flows. She has also asked you to answer the following questions:
How would you describe East Coast Yachts’ cash flows?
Which cash flows statement more accurately describes the cash flows at the company?
In light of your previous answers, comment on Larissa’s expansion plans.
In addition to your responses to the 3 questions, be sure to also prepare and submit the statement of cash flows.
FIN341 Corporate Financial Management
Week 2 Case Study
Instructions
The Week 2 Case Study Assignment is the first part of a series of analytical tasks, spanning several weeks. Your task involves an analysis of general economic conditions or systematic risk, i.e., the risk that affects all industries and companies, in the U.S. macroeconomy. Your goal is to determine in percentage terms an optimal allocation of $1,000,000 among the following three asset classes: U.S. equities, U.S. Treasury bonds, and cash.
The goal is to maximize your expected return over the next 12 months.
Write a 1- to 2-page paper providing your analysis of the asset classes’ prospects and your justification of your allocation of monies among them.
In Week 2, submit your analysis of U.S. equities.
Note: In the upcoming weeks, you will submit your analysis of U.S. Treasury bonds and cash.
FIN341 Corporate Financial Management
Week 3 Case Study
The Week 3 Case Study Assignment is the second part of a series of analytical tasks, spanning several weeks. Your task involves an analysis of general economic conditions or systematic risk, i.e., the risk that affects all industries and companies, in the U.S. macroeconomy. Your goal is to determine in percentage terms an optimal allocation of $1,000,000 among the following three asset classes: U.S. equities, U.S. Treasury bonds, and cash.
The goal is to maximize your expected return over the next 12 months.
Write a 1- to 2-page paper providing your analysis of the asset classes’ prospects and your justification of your allocation of monies among them.
In Week 3, submit your analysis of U.S. Treasury bonds. Keep in mind that the purpose of your analysis is to determine how much money to allocate to each class.
FIN341 Corporate Financial Management
Week 4 Case Study
Instructions
The Week 4 Case Study Assignment is the third part of a series of analytical tasks, spanning several weeks. Your task involves an analysis of general economic conditions or systematic risk, i.e., the risk that affects all industries and companies, in the U.S. macroeconomy. Your goal is to determine in percentage terms an optimal allocation of $1,000,000 among the following three asset classes: U.S. equities, U.S. Treasury bonds, and cash.
The goal is to maximize your expected return over the next 12 months.
Write a 1- to 2-page paper providing your analysis of the asset classes’ prospects and your justification of your allocation of monies among them.
In Week 4, submit your analysis of the decision to invest your assets in cash. Keep in mind that the purpose of your analysis is to determine how much money to allocate to each class.
FIN341 Corporate Financial Management
Week 5 Case Study
Instructions
The Week 5 Case Study Assignment is the fourth of a series of analytical tasks, spanning several weeks. Your task involves an analysis of general economic conditions or systematic risk, i.e., the risk that affects all industries and companies, in the U.S. macroeconomy. Your goal is to determine in percentage terms an optimal allocation of $1,000,000 among the following three asset classes: U.S. equities, U.S. Treasury bonds, and cash.
The goal is to maximize your expected return over the next 12 months.
In Week 5, submit a combined analysis of your allocation among the three asset classes. Combine your analysis from the previous three weeks into one final paper and include a conclusion summarizing your findings over the course of the 3-week project.
FIN341 Corporate Financial Management
Week 6 Case Study
Instructions
The Week 6 Case Study Assignment asks that you consider the agency relationship between a corporate financial manager and the shareholders of the corporation.
As a corporate financial manager, you have the opportunity to manage the company’s cash on behalf of its owners (shareholders).
Consider the case of Apple, Inc, and the company’s cash stockpile. The company’s financial managers bear the responsibility of managing the cash reserves on behalf of Apple’s shareholders.
Write a 1-2 page paper, using the following guidelines:
In the first half of the paper, research and briefly describe the concept of agency.
In the second half of your paper, imagine yourself in the role of Apple’s financial management team. Describe what types of measures you would take to ensure that any decisions made with regards to the company’s cash faithfully represent the wishes of the shareholders.
FIN341 Corporate Financial Management
Week 7 Case Study
Instructions
The Week 7 Case Study Assignment is an individual assignment that requires you to analyze a select group of alternative industries to determine which is most likely to perform best over the next 12 months. Factors to consider when comparing the industry groups include how the current and prospective economic conditions over the next year will affect them and the current and prospective domestic and global supply and demand conditions in their markets.
Review briefly the list of industries below and pick two major groups to analyze. Submit your choice of industries as your Week 7 Case Study Assignment.
Note: In week 8, you will submit an analysis of the two groups.
Basic Materials:
Aluminum
Major Integrated Oil &Gas
Nonmetallic Mineral Mining
Consumer Goods:
Appliances
Confectioners
Office Supplies
Financial:
REIT-Healthcare Facilities
REIT-Hotel/Motel
REIT-Industrial
Healthcare:
Drugs-Generic
Home Health Care
Hospitals
Industrial Goods:
Manufactured Housing
Pollution & Treatment Controls
Services:
Advertising Agencies
Air Delivery & Freight Services
Drug Stores
Electronic Stores
Home Improvement Stores
Jewelry Stores
Technology:
Computer Based Systems
Long Distance Carriers
Personal Computers
Utilities:
Water Utilities
FIN341 Corporate Financial Management
Week 8 Case Study
Instructions
The Week 8 Case Study Assignment requires you to submit your final analysis of the two industry groups selected in Week 7, to determine which is most likely to perform best over the next 12 months. Factors to consider when comparing the industry groups include how the current and prospective economic conditions over the next year will affect them and the current and prospective domestic and global supply and demand conditions in their markets.
Create a 2-page essay that includes your analysis. Submit your work as your Week 8 Case Study Assignment.
Basic Materials:
Aluminum
Major Integrated Oil &Gas
Nonmetallic Mineral Mining
Consumer Goods:
Appliances
Confectioners
Office Supplies
Financial:
REIT-Healthcare Facilities
REIT-Hotel/Motel
REIT-Industrial
Healthcare:
Drugs-Generic
Home Health Care
Hospitals
Industrial Goods:
Manufactured Housing
Pollution & Treatment Controls
Services:
Advertising Agencies
Air Delivery & Freight Services
Drug Stores
Electronic Stores
Home Improvement Stores
Jewelry Stores
Technology:
Computer Based Systems
Long Distance Carriers
Personal Computers
Utilities:
Water Utilities
FIN341 Corporate Financial Management
Week 1 Assignment
Does the concept of social responsibility have a role in finance? Briefly, describe its role in your own words.
FIN341 Corporate Financial Management
Week 2 Assignment
What is the difference between operating leverage and financial leverage?
FIN341 Corporate Financial Management
Week 3 Assignment
What is the prime rate and how is it used by financial institutions?
FIN341 Corporate Financial Management
Week 4 Assignment
Explain in your own words the concept of the time value of money.
FIN341 Corporate Financial Management
Week 5 Assignment
Explain what is meant by the required rate of return and include an example.
FIN341 Corporate Financial Management
Week 6 Assignment
Explain the concept of capital expenditures and give 2 examples.
FIN341 Corporate Financial Management
Week 7 Assignment
What is meant by a poison pill, in corporate management? Give an example of how the concept is applied.
FIN341 Corporate Financial Management
Week 8 Assignment
How can the use of derivatives help a corporation minimize risk?
FIN341 Corporate Financial Management
Week 8 Final Assessment
Instructions
For the Final Assessment, you will select 2 corporations that compete in the same industry. You will review their financial reports for the last available 2 years and compare and contrast the financing choices of the two companies. You should present your findings in a PowerPoint presentation (with completed Notes section providing details of your analysis. You must also provide a slide of exhibits of financial reports analyzed for the Presentation).
Your project will include the following sections:
Overview of the two corporations
Compare and contrast: differences and similarities in equity financing
Compare and contrast: differences and similarities in debt financing
Analysis of overall financing strategy of the two companies
Cost of capital or required return on investment considerations
Note: You should only submit a PowerPoint. It should be about 15-20 slides and include detailed Speaker’s Notes.
You should compare 2 publicly traded companies that are in the same industry, for example, Sprint vs Verizon or Target vs Walmart.
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