Liquidity

1. Explain why financial ratios are more meaningful for financial analysis than individual entries? Financial ratios are calculated from one or more pieces of information from a company's financial statements. For example, the "gross margin" is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a compa... click for more

Cost Allocation

I would like help on identify the relative advantages and disadvantages of each of the three primary cost allocation methods (Direct Allocation, Step-Down Allocation, and Reciprocal Allocation).

How much has she made (or lost) on the hedging decision?

Your company has invested $6 million in a new Trilithium crystal technology project. The company will generate huge profits if the project is successful. As a risk hedge, the CFO decides to purchase equal risk derivatives. She buys two hundred 1-year put option contracts with an exercise price of $50. The cost of the option is $3.50 per share. Eight months later, the Trilithium crystal project is a big success and the current price of the underlying security is $66. She decides to sell the option at that time for $1.25 per share. How much has she made (or lost) on the hedging decision?

Outstanding shares

Jelly Beans, Inc., is proposing a rights offering. There are 100,000 outstanding shares at $25 each. There will be 10,000 new shares issued at a $20 subscription price. 1. What is the value of a right? 2. What is the ex-rights price? 3. What is the new market value of the company? 4. Why might a company have a rights offering rather than a common stock offering?

Break-Even Analysis and Leverage Problem

Firm A has $10,000 in assest entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in dept (with a 10% rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of productions are $1, and fixed production costs are $12,000. (To ese the calculation, assume no income tax.) A. What is the operting income (EBIT) for both firms? B. What are the earnings after interest? C. If sales increase by 10% to 11,000 units, by what percentage will each firm's earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage incre... click for more