Case 1 Risk and Rates of Return

Professor Thomas Piper prepared the original version of this note, “Assessing a Firm’s Future Financial Health,” HBS No. 201-077, which is being

To relever the βe, we use the formula, βe = βu +(D/E)*(βu-βd). And the “Target D/E” was found by taking “Target D/V” divided by “1-Target D/V”. So we get the new βe, 1.3576. Then to get cost of equity, we use the CAPM formula, Re=Rf+β(EMRP), 11.7679%. Since we have get the cost of equity and cost of debt, we can determined the WACC, which is equal to Equity/Value*Cost of Equity+Debt/Value*Cost of Debt*(1-tax rate). In the end ,we arrived at 8.48%.

This view implies that a single hurdle rate may deprive an under profitable division of investments in order to channel more funds into a more profitable division. While this is sound logic, certain situation exist where projects will go unfunded that do create value to the company.

Q1) Assess the product-market strategy and financial strategy Massey pursued through 1976. Where possible, compare Massey’s strategy with those of its leading competitors.

The table below shows the equity betas for the firms presented in the case (using Jan-92 to Dec-96 equal weight NYSE/AMEX/NASDAQ as market portfolio):

This course applies corporate finance concepts to make management decisions. Students learn methods to evaluate financial alternatives and create financial plans. Other topics include cash flows, business valuation, working capital, capital budgets, and long-term financing.

The company is the corporation’s question mark performer and has the potential of becoming a star performer given the limited competition in the market. The company has the advantage of the parent corporation’s 25-year-old positive reputation as a local family owned business known for the quality of their products.

     As Burton is a privately owned company, it is not as competitive as other companies are, when compared to public corporations that have financial support from shareholders. Burton reinvests in its company with only its profits, yet with shareholders backing, investment could be higher. Burton expanded by its family by creating four parent companies within two years of each other. The short time committed to, and before starting, each new addition may not have allowed for enough attention to each. (www.hoovers.com, 2004)

The analysis of a company's financial statements helps in the determination of both the weaknesses and strengths of the concerned entity. Further, such an analysis helps in the determination of the future viability of firms. There are a wide range of techniques utilized in the analysis of financial statements. In that regard, it is important to note that the relevance of a horizontal, vertical as well as ratio analysis of a company's financial statements cannot be overstated. This is more so the case when it comes to the interpretation of the various dollar amounts presented in both the balance sheet and the income statement. In this text, I carry out a horizontal, vertical as well as ratio analysis of both The Coca-Cola Company and PepsiCo, Inc. The analysis' results will be critical in the evaluation of each company's performance. Findings will be used as a basis for recommendations on how each company can improve its financial status.

Hurdle rates, the weighted cost of capital that projected cash flows must exceed for initiatives to be considered, vary within Marriott Corporations due to their unique industry risk levels and capital structures. They use this number to determine which projects to accept, to adjust the rate at which the firm grows and as a measure for compensation within each business area, and as incentive compensation.

The issue of risk scenario carries immense importance for most of the hospitals that are part of the healthcare setting. However, there is not only one scenario that can affect the hospitals but

Review of Financial Research Report: This assignment is an analysis of a US publicly-traded company; its common stock could be a prospective investment.  The report is due in Week 10, in needs to be at least 5 pages, and it needs to cover the following topics:

Open-ended questions such as these will generate energy in the class, though the instructor should take care to limit the amount of time spent in this phase of the class, since students will find it easy to offer observations about the firm’s apparent strategy and financial performance. By letting the students assess the problems of this company in a nondirective fashion, the instructor can gauge students’ abilities and build students’ “ownership” of the analysis. The next three questions are a directive approach to problem assessment and could supplement this question or be used in place of it.

Christian and David Stone invested their own money in the company. However, they seek additional funding from Arthur Greenway and Rose Moore in order to expand. The owners’ distribution is as follows: Greenway and Moore control two-thirds of the shares and the remaining one-third is controlled by the brothers. They have additional funding needs because they consider expanding the restaurant and the bar. The low current

In the initial SIB projects, philanthropic investors have assumed most of the risk of the projects. Little or no government payment has been required unless the projects meet their performance targets. One of the main reasons SIBs have spread so rapidly is because of their model and approach. They posses a “money-back guarantee” structure that has been very attractive to governments. In the long run, it may be necessary for governments to share more of the failure risk if SIBs are not to reach their full potential. The pool of capital available and the number of policy areas where it will be possible to convince investors to take on all of the risk are likely to be limited.