Vega Case

Market value proportions of: Debt = $1,147,200 / $4,897,200 = 23.4% Pref. Share = $1,250,000 / $4,897,200 = 25.5% Common equity = $2,500,000 / $4,897,200 = 51.1%

Debt to Equity Ratio of 1.23 more than 1 reveals that more than half of assets are financed by debt.

The company’s leverage ratio is 28% - 72% of its assets are financed by common equity and the company was profitable in the last reporting period. The company should easily raise additional funds from creditors and a convertible debenture will be an appealing venture for creditors who would want to purchase stocks of the company in the future.

California Surf Clothing Company issues 1,300 shares of $7 par value common stock at $22 per share. Later in the year, the company decides to repurchase 130 shares at a cost of $35 per share.

11. Compute the total debt-to-equity ratio for 2012 using Nash-Finch's data as reported and your adjusted figures. Include the tax adjustment in your computations. Which ratio provides the best measure of solvency and why? (Formula: total current and long-term debt/total equity.)

24) A firm has assets of $250 million, of which $25 million is cash. It has debt of $100 million. If the firm were to repurchase $10 million of its stock, what would its new debt-to-equity ratio be?

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

The startup plan was developed on a small budget, however; the company has managed to develop and keep expanding. If the results are conclusive and a loan application is approved this will allow the company to meet new needs as they arise. This will include the building of new locations, updated computers, cash registers, and a rewards system for the loyal guests.

Using the AFN equation, it was calculated (assuming there were no dividends paid, and that sales were expected to grow to $3.6 million) that the amount of extra funding needed would be approximately $76,360. This amount would

Thus the WAVG Cost of Debt (including L/T debt and preferred stock) = rd = 8.633%

It has the option to distribute the cash in the form of dividends. Shareholders were taxed on cash dividends at ordinary income rates whereas gains realized on shares that were repurchased received capital gains treatment.

Computed: PPE = $6876M / $21,695M = 31.7% Intangible assets = $4041M / $21,695M = 22% Computed: $3,374M / $4,841 = 70% Computed: Accounts payable = $4461M / $13,021M = 34.2% Long-term debt = $2651M / $13,021M = 20.4% Computed: Long-term investments = $8214M / $22,417M = 36.6% Current assets = $7171M / $22,417M = 32%

They will end up with 6.3 billion external funding needed. While in the long-term, the operating cash flow increased but the capital expenditure increased also. They actually will end up with 6.6 billion dollar needed to finance.

Weight of Equity = 71%; Equity Cost of Capital = 12%; Weight of Debt = 29%; Debt Cost of Capital = 4.55%

2. New bank credit facility, 600 million cash on hand to take advantage of opportunities that may arise