CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264807475
Author: Ross
Publisher: MCG CUSTOM
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Chapter 2, Problem 10CQ
Summary Introduction
To state: The reason for the conclusion
Introduction: The cash flow statement of any company represents the inflow and outflow of cash during the specified period. Along with the amount, it states the reason for the flow of cash.
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2. Does the company have enough cash and liquidity to survive an economic slowdown? Enhance the answer with a clear conclusion
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Although its own operations have shown no growth over the past decade, Hammerworks Inc. has built up a significant cash balance ($2.9 billion) in anticipation of a collapse in equity prices which it believes will create opportunities for valuable acquisitions. Following just such a correction, two potential targets are now being considered: Metallion has a current market capitalization of $1.1 billion, $550 million in 6% debt (YTM also 6%), and generates EBIT of $175 million annually with no growth (a 7.1% profit margin on annual sales of $1.4 billion). Goblikon has an enterprise value of $1.3 billion, a market valued D/E of 1.1, and has been growing its profits at 4% for the past several years (it currently has a P/E ratio of 10). In either case, Hammerworks would be expected to pay off the target’s bond holders in full as there is a change of control clause in their bond indentures. Since either acquisition would be paid for with cash, the firm expects that either acquisition…
Although its own operations have shown no growth over the past decade, Hammerworks Inc. has built up a significant cash balance ($2.9 billion) in anticipation of a collapse in equity prices which it believes will create opportunities for valuable acquisitions. Following just such a correction, two potential targets are now being considered: Metallion has a current market capitalization of $1.1 billion, $550 million in 6% debt (YTM also 6%), and generates EBIT of $175 million annually with no growth (a 7.1% profit margin on annual sales of $1.4 billion). Goblikon has an enterprise value of $1.3 billion, a market valued D/E of 1.1, and has been growing its profits at 4% for the past several years (it currently has a P/E ratio of 10). In either case, Hammerworks would be expected to pay off the target’s bond holders in full as there is a change of control clause in their bond indentures. Since either acquisition would be paid for with cash, the firm expects that either acquisition…
Chapter 2 Solutions
CORPORATE FINANCE--CONNECT ACCESS CARD
Ch. 2 - Prob. 1CQCh. 2 - Prob. 2CQCh. 2 - Prob. 3CQCh. 2 - Prob. 4CQCh. 2 - Prob. 5CQCh. 2 - Cash Flow from Assets Why is it not necessarily...Ch. 2 - Operating Cash flow Why is it not necessarily bad...Ch. 2 - Net Working Capital and Capital Spending Could a...Ch. 2 - Cash Flow to Stockholders and Creditors Could a...Ch. 2 - Prob. 10CQ
Ch. 2 - Building a Balance Sheet Alesha, Inc., has current...Ch. 2 - Building an Income Statement Gia, Inc, has sales...Ch. 2 - Market Values and Book Values Klingon Cruisers,...Ch. 2 - Calculating Taxes Terri Simmons is single and had...Ch. 2 - Calculating OCF Sheaves, Inc., has sales of...Ch. 2 - Prob. 6QAPCh. 2 - Prob. 7QAPCh. 2 - Prob. 8QAPCh. 2 - Prob. 9QAPCh. 2 - Prob. 10QAPCh. 2 - Cash Flows Ritter Corporations accountants...Ch. 2 - Financial Cash Flows The Stancil Corporation...Ch. 2 - Building an Income Statement During the year, the...Ch. 2 - Prob. 14QAPCh. 2 - Prob. 15QAPCh. 2 - Residual Claims Stark: Inc., is obligated to pay...Ch. 2 - Net Income and OCF During 2019, Rainbow Umbrella...Ch. 2 - Prob. 18QAPCh. 2 - Prob. 19QAPCh. 2 - Prob. 20QAPCh. 2 - Prob. 21QAPCh. 2 - Prob. 22QAPCh. 2 - Cash Flows You are researching Time Manufacturing...Ch. 2 - Prob. 24QAPCh. 2 - Prob. 1MCCh. 2 - Prob. 2MCCh. 2 - Prob. 3MC
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