22 Jun What issue does agency th
What issue does agency theory examine? Why is it important in a public corporation rather than in a private corporation?
The issues that agency theories examine are/is: Examines the relationship between the owners and the managers of the firm. It is important in a public corp. because, In privately owned firms, management and owners are usually the same people, and in public, as a company moves from private to public ownership, management now represents all the owners, This places management in the agency position of making decisions that will be in the best interests of all shareholders.
2. What changes can take place under restructuring? In recent times, what group of investors has often forced restructuring to take place?
? Changes to liabilities and equity on the balance sheet.
? Selling and reinvesting from divisions
? Changing management team and workforce.
? Institutional investors force restructuring
3. What is the difference between book value per share of common stock and market value per share? Why does this disparity occur?
Book Value per stock:
Common shareholders’ equity divided by common shares outstanding at the end of the indicated annual period. Book value per share is one of many factors to be used when appraising a stock. There is no rule for an adequate book value per share, but the difference between book value and market value is usually accounted for by the actual or potential earning power of a company.
The disparity occurs because:
4. Explain how the Du Pont system of analysis breaks down return on assets. Also explain how it breaks down return on stockholders’ equity.
Profit margin is Net Income / Sales
1. Asset Turnover is Sales / Total Assets
2. Return on Assets is Profit Margin * Asset turnover
3. Return on equity is return on assets / (1- debt / Assets)
The Du Pont system stresses that a satisfactory return on assets may be achieved through high profit margin or rapid turnover of assets or both. With the Du Pont system the use of debt is also important as this affects the return on equity.
5, Comparisons of income can be very difficult for two companies even though they sell the same products in equal volume. Why?
There are many different ways of recognizing data for financial reports which can affect the profit and other ratios for example;
? Timing of recording revenue (Enron)
? Cost of goods sold (Inventory, LIFO and FIFO)
? Extraordinary gains and losses (before or after taxes)
? Depreciation methods and rates
? Reserve accounts
? Management payment methods (options or cash)
? Of balance sheet loans
? Capitalizing certain expense then amortising over a longer time e.g. AOL.
? Aggressive accounting methods may be a sign of avaricious managers alone or may be part of the competitive culture of a particular industry.
6. What is the significance to working capital management of matching sales and production?
7. Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?
8. What are three quantitative measures that can be applied to the collection policy of the firm?
9. What does the EOQ formula tell us? What assumption is made about the usage rate for inventory?
10. A borrower is often confronted with a stated interest rate and an effective interest rate. What is the difference, and which one should the financial manager recognize as the true cost of borrowing?
11. What is the difference between pledging accounts receivable and factoring accounts receivable?
12. What is meant by hedging in the financial futures market to offset interest rate risks?
13. In what two ways do security markets provide liquidity?
14. Discuss the benefits accruing to a company that is traded in the public securities markets. What are the disadvantages to being public?
15. Company A ships goods throughout the country and has determined that the establishment of local collection centers around the country, can speed up the collection of payments by one and one-half days. Furthermore, the cash management department of the bank has indicated to them that they can defer payments on accounts by one-half day without affecting suppliers. The bank has a remote disbursement center.
a. If the company has $4 million per day in collections and $2 million per day in disbursements, how many dollars will the cash management system free up?
b. If the company can earn 9 percent per annum on freed up funds, how much will the income be?
c. If the total cost of the new system is $700,000, should it be implemented?
16. The Holtzman Corporation has assets of $400,000, current liabilities of $50,000, and long-term liabilities of $100,000. There is $40,000 in preferred stock outstanding; 20,000 shares of common stock have been issued
a. Compute book values (net worth) per share.
400,000 -50,000-100,000= $250,000 40,000+60,000= 60,000
250,000/60= $4.17 net worth per share.
b. If there is $22,000 in earnings available to common stockholders and Holtzman’s stock has a P/E of 18 times earnings per share, what is the current price of the stock?
c. What is the ratio of market value per share to book value per share?
17. A company has assets of $400,000 and turns over its assets 1.5 times per year. Return on assets is 12 percent. What is its profit margin (return on sales)?
18. Hazardous Toys Company produces boomerangs that sell for $8 each and have a var
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.