FUND. OF CORPORATE FIN. 18MNTH ACCESS
15th Edition
ISBN: 9781259811913
Author: Ross
Publisher: MCG CUSTOM
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Chapter 3, Problem 2CRCT
Current Ratio and Quick Ratio [LO2] In recent years, Dixie Co. has greatly increased its current ratio. At the same time, the quick ratio has fallen. What has happened? Has the liquidity of the company improved?
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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
Ans. The financials of WeWork doesn't seem to be much profitable, we can assume that is because of the pandemic. In the year 2022, the revenue of the first quarter was $765 million which is an increase of 6-7% in a quarter.
Net loss was $504 million. Because of the increase in interest rates, it is hard for WeWork to get more loans to finish off its debt and the investors are not much interested as they can interpret the future outcomes by looking at the current balances of the company. The revenue in the third quarter was $817 million which is an increase of 24% year-over-year. The company has $500 million in undrawn debt commitments from SoftBank and has said it expects to end 2022 with $300 million in cash, less than one-third of what it had at the end of 2021. Its debt contracts allow it to borrow another $500 million. As the cash and liquidity of WeWork…
3. What is the industry average price–earnings ratio? What is Ragan’s price–earnings ratio? Comment on any differences and explain why they may exist.
4. Assume the company’s growth rate declines to the industry average after five years. What percentage of the stock’s value is attributable to growth opportunities?
A6)
Finance
1. What of the following statements is not correct? _____
the higher the sales growth rate g is, the larger AFN will be—other things held constant.
The higher the capital intensity ratio, the larger AFN will be—other things held constant.
The higher the firm’s spontaneous liabilities, the smaller AFN will be—other things held constant.
The higher the payout ratio, the larger AFN will be if other things held constant.
Chapter 3 Solutions
FUND. OF CORPORATE FIN. 18MNTH ACCESS
Ch. 3.1 - Prob. 3.1ACQCh. 3.1 - Prob. 3.1BCQCh. 3.2 - Prob. 3.2ACQCh. 3.2 - Name two types of standardized statements and...Ch. 3.3 - What are the five groups of ratios? Give two or...Ch. 3.3 - Given the total debt ratio, what other two ratios...Ch. 3.3 - Turnover ratios all have one of two figures as the...Ch. 3.3 - Profitability ratios all have the same figure in...Ch. 3.4 - Return on assets, or ROA, can be expressed as the...Ch. 3.4 - Return on equity, or ROE, can be expressed as the...
Ch. 3.5 - Prob. 3.5ACQCh. 3.5 - Prob. 3.5BCQCh. 3.5 - Prob. 3.5CCQCh. 3.5 - Prob. 3.5DCQCh. 3 - Prob. 3.1CTFCh. 3 - Prob. 3.2CTFCh. 3 - What is the correct formula for computing the...Ch. 3 - Prob. 3.5CTFCh. 3 - Current Ratio [LO2] What effect would the...Ch. 3 - Current Ratio and Quick Ratio [LO2] In recent...Ch. 3 - Prob. 3CRCTCh. 3 - Prob. 4CRCTCh. 3 - Prob. 5CRCTCh. 3 - Prob. 6CRCTCh. 3 - Prob. 7CRCTCh. 3 - Prob. 8CRCTCh. 3 - Prob. 9CRCTCh. 3 - Industry-Specific Ratios [LO2] There are many ways...Ch. 3 - Prob. 11CRCTCh. 3 - Prob. 12CRCTCh. 3 - Calculating Liquidity Ratios [LO2] SDJ, Inc., has...Ch. 3 - Calculating Profitability Ratios [LO2] Shelton,...Ch. 3 - Calculating the Average Collection Period [LO2]...Ch. 3 - Calculating Inventory Turnover [LO2] The Green...Ch. 3 - Calculating Leverage Ratios [LO2] Levine, Inc.,...Ch. 3 - Calculating Market Value Ratios [LO2] Makers Corp....Ch. 3 - DuPont Identity [LO4] If Roten Rooters, Inc., has...Ch. 3 - DuPont Identity [LO4] Zombie Corp. has a profit...Ch. 3 - Prob. 9QPCh. 3 - Prob. 10QPCh. 3 - Prob. 11QPCh. 3 - Equity Multiplier and Return on Equity [LO3] SME...Ch. 3 - Just Dew It Corporation reports the following...Ch. 3 - Prob. 14QPCh. 3 - Prob. 15QPCh. 3 - Prob. 16QPCh. 3 - Calculating Financial Ratios [LO2] Based on the...Ch. 3 - Using the DuPont Identity [LO3] Y3K, Inc., has...Ch. 3 - Days Sales in Receivables [LO2] A company has net...Ch. 3 - Ratios and Fixed Assets [LO2] The Caughlin Company...Ch. 3 - Profit Margin [LO4] In response to complaints...Ch. 3 - Return on Equity [LO2] Firm A and Firm B have...Ch. 3 - Calculating the Cash Coverage Ratio [LO2] Ugh...Ch. 3 - Cost of Goods Sold [LO2] W B Corp. has current...Ch. 3 - Prob. 25QPCh. 3 - Some recent financial statements for Smolira Golf...Ch. 3 - DuPont Identity [LO3] Construct the DuPont...Ch. 3 - Prob. 28QPCh. 3 - Market Value Ratios [LO2] Smolira Golf Corp. has...Ch. 3 - Tobins Q [LO2] What is Tobins Q for Smolira Golf?...Ch. 3 - Using the financial statements provided for SS...Ch. 3 - Mark and Todd agree that a ratio analysis can...Ch. 3 - Compare the performance of SS Air to the industry....
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- p14 More profitable firms have less debt, which supports the trade-off theory. True Falsearrow_forwardQ. 6 High Flyer, Inc., wishes to maintain a growth rate of 14% per year and a debt-equity ratio of 0.5. The profit margin is 4.6%, and total asset turnover is constant at 1.16. What is the dividend payout ratio? (A negative answer should be indicated by a minus sign. DO NOT round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16) What is the maximum sustainable growth rate for this company? (DO NOT round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16)arrow_forward22.If we observe that firms with higher market-to-book ratios have higher leverage ratios, illustrate at least two theories can be used to explain this phenomenon. [answer in no more than 100 words]arrow_forward
- 5. A firm has an asset turnover ratio of 2.0. Its plowback ratio is 40%, and it is all equity-financed. What must its profit margin be if it wishes to finance 11% growth using only internally generated funds? if the profit margin of the firm is now found to be 6%, what is the maximum payout ratio that will allow it to grow at 8% without resorting to external financing?arrow_forward4. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of .5%.5. Compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g.6. What happens to the sensitivity of intrinsic value to changes in g? What do you conclude about the reliability of estimates based on the dividend growth model when the assumed sustainable growth rate begins to approach the discount rate?arrow_forwardHow would an increase in each of the following factors affect the AFN?1. Payout ratio2. Capital intensity ratio, A0*/S03. Profit margin4. Days sales outstanding, DSO5. Sales growth rateIs it possible for the AFN to be negative? If so, what would this indicate?If excess capacity exists, how would that affect the calculated AFN?arrow_forward
- H3. A firm wishes to maintain an sustainable growth rate of 9 percent and a dividend payout ratio of 64 percent. The ratio of total assets to sales is constant at 0.9, and the profit margin is 10.1 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be? Please show proper step by step calculationarrow_forwardCalculating Profi tability Ratios [LO2] Wakers, Inc., has sales of $29 million,total assets of $17.5 million, and total debt of $6.3 million. If the profi t marginis 8 percent, what is net income? What is ROA? What is ROE?arrow_forwardCash Conversion Cycle. Will each of the followingevents increase or decrease cash conversion cycles?(LO2)A-Higher financing rates induce the firm to reduceits level of inventory. b.The firm obtains a new line of credit that enablesit to avoid stretching payables to its suppliers.c-The firm factors its trade receivables.d-A recession occurs andthe firm's customersincreasingly stretch their payables.e.The new production process shortens the timeneeded to manufacture products.arrow_forward
- Q8) The following ratio analysis limitation is best described: Many large firms operate in different industries, and it is difficult to find a meaningful set of industry-average ratios. Group of answer choices a) Many different divisions. b) Inflation. c) Different accounting practices. d) Window dressing.arrow_forward1. Suppose that a financial institution has a negative $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a rise in interest rates? 2. Suppose a financial institution has a positive $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a drop in interest rates?arrow_forwardH3. The value of HILEV firm at the end of one year can be $50 m or $100 m with equal probability of 0.5. The firm has debt with a face value of $50 m that matures in one year. Assume that investors are risk-neutral and the risk free rate is zero. The CEO of the firm decides to substitute assets of the firm with more risky assets immediately, so that the value of the firm at the end of one year is either $30 m or $120 m with equal probability of 0.5. This asset substitution will lead to A. A gain of $10 million for stockholders and a loss of $10 million for bondholders B. A loss of $10 million for stockholders and a gain of $10 million for bondholders C. No gain or loss to debtholders or equity holders D. Both debtholders and equity holders will lose $10 million from the increased risk of the business Show proper step by step calculationarrow_forward
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