Problem Set 1-2

.pdf

School

Stevens Institute Of Technology *

*We aren’t endorsed by this school

Course

CORPORATE

Subject

Finance

Date

Feb 20, 2024

Type

pdf

Pages

5

Uploaded by ElderWillpower13265

Problem Set I Fin 638: Corporate Finance Due Friday, February 11 Please submit neatly handwritten or typed answers. Create a single pdf file and submit electronically through Canvas or in class. Show your steps or reasoning. Do not just write numbers. For example, avoid answers like 100 × 1 . 05 2 . A better answer would be PV = 100, r = 5%, n = 2 = FV = 100 × 1 . 05 2 . 1 Corporation, Financial Markets Problem 1.1. See the Economist article about short selling from https://www.economist. com/finance-and-economics/2023/11/30/short-sellers-are-endangered-that-is-bad- news-for-markets or through library https://stevens.idm.oclc.org/login?url=https: //www.proquest.com/magazines/short-sellers-are-endangered-that-is-bad-news/docview/ 2895218054/se-2 . (a) According to the article, what were the effects of a short-sales ban in six European countries? (b) What do you think? Should short-selling be banned or suppressed? Problem 1.2. See the Wall Street Journal article about selling of shareholder voting rights from https://www.wsj.com/finance/stocks/buy-my-vote-a-startup-is-letting-shareholders- sell-their-proxies-122f0eb9 or through library https://stevens.idm.oclc.org/login? url=https://www.proquest.com/newspapers/votes-sale-startup-is-letting-shareholders- sell/docview/2916896574/se-2 . The buyer and the seller in a transaction obviously are trading because they think it is in their interest. But we are interested in exploring whether such trading good for companies and markets. (a) According to the article, “creating a market for proxy votes would enhance share- holder democracy and ultimately make companies better-run”. What do you think that means? (b) In the next sentence, the article mentions a risk of such trading. Again, discuss how such trading can be harmful to companies or markets. 2 Financial Statements Use the financial statements of Duck Corporation to answer the following questions. 1
Duck Corporation Consolidated Balance Sheet Year ended December 31 (in millions) Liabilities and Assets 2022 2021 Stockholders’ equity 2022 2021 Current Assets Current Liabilities Cash 127.2 117.0 Accounts payable 175.2 147.0 Accounts receivable 111.0 79.2 Notes payable 21.0 19.2 Inventories 91.8 85.8 Current maturities of long-term debt 79.8 73.8 Other current assets 12.0 6.0 Other current liabilities 12.0 24.0 Total current assets 342.0 288.0 Total current liabilities 288.0 264.0 Long-term assets Long-term Liabilities Land 133.2 124.2 Long-term debt 479.4 337.8 Buildings 219.0 183.0 Capital lease obligations Equipment 238.2 199.2 Total Debt 479.4 337.8 Less accumulated depreciation (112.2) (105.0) Deferred taxes 45.6 44.4 Net property, plant, and equipment 478.2 401.4 Other long-term liabilities Goodwill 120.0 Total long-term liabilities 525.0 382.2 Other long-term assets 126.0 84.0 Total liabilities 813.0 646.2 Total long-term assets 724.2 485.4 Stockholders’ equity 253.2 127.2 Total liabilities and Total Assets 1066.2 773.4 Stockholders’ equity 1066.2 773.4 Duck Corporation Consolidated Income Statement Year ended December 31 (in millions) 2022 2021 Revenue 1220.2 1156.6 Cost of sales (1000.4) (963.8) Gross profit 219.8 192.8 Selling, general, and administrative expenses (81.0) (78.0) Research and development (49.2) (45.6) Depreciation and amortization (7.2) (6.6) Operating income 82.4 62.6 Other income Earnings before interest and taxes (EBIT) 82.4 62.6 Interest income (expense) (50.2) (31.6) Pre-tax income 32.2 31.0 Taxes (11.0) (10.6) Net income 21.2 20.4 Dividends paid 10.2 10.0 Price per share 32 30 Shares outstanding (millions) 12.0 8.0 Problem 2.1. What is Duck’s net working capital at year-end 2022? 2
Problem 2.2. What is Duck’s market-to-book ratio at year-end 2022? Problem 2.3. What is Duck’s operating margin in 2022? Problem 2.4. What is Duck’s accounts payable days in 2022? Assume there are 365 days in a year and use accounts payable at year-end. 3 Financial Decision Making Problem 3.1. See the following images for prices of a pack of 6 notebooks and a pack of 3 notebooks from an online retailer. Is there an arbitrage opportunity here? Why or why not? Recall that there is an arbitrage strategy if there is a strategy to profit without taking any risk. 3
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help