Determinants of security value include company profitability, operating growth, and risk. The first determinant was covered in
Fantastic news! We've Found the answer you've been seeking!
Question:
Determinants of security value include company profitability, operating growth, and risk. The first determinant was covered in Step 1. In Step 2 we complete our analysis with:
(a) cost of capital (debt, equity, weighted) and
(b)growth forecast using internal measurements and external data from industry, and macroeconomic analysis.
Transcribed Image Text:
Company Cash Marketable Securities Accounts Receivables Quick Ratio $101.975 1.68 $14,272 $20,904 $15,238 58.163 $8.337 8.44 0.72 Ford GM Industry Based on these findings Ford Motor Company and General Motors are both safe short-term investment; the difference li in inventory values and prepaid assets. Capital Structure and Solvency A company's total debt to equity ratio gives the stockholder good idea of the risk they are going to make if looking to inv According to the assigned text, the total debt to equity ratio equals all long-term debt plus all short-term debt, divided by stockholders' equity. "This ratio is a measure of solvency, indicating whether or not a company can generate sufficient to repay long term obligations." (Easton, 2020, ) Ford Motor Company and General Motors both hold more debt than equi Table 2.1: Total Debt to Equity Ratio (in millions) Company Long Term Debt Short Term Debt Stockholders' Equity Total Debt to Equity Ratio 4.70 1.58 2.36 Ford GM $120,731 $43,549 Industry Ford's debt to equity ratio is three times General Motors' rat and roughly 1.5 times that of the industry, suggesting the company relies more heavily on debt financing than most competitors. "Too much borrowing is risky in that borrowed money must be repaid with interest. The level of debt a comp can effectively manage is directly related to the stability and reliability of its operating cash flows." (Easton, 2020,) $13,902 $19.562 Table 2.2: Operating vs. Non-Operating Return (in millions) Company ROERNOA Non-Operating Return Ford 27.8 7.9% 19.8% GM 25.2% 16.2% 9.0% Industry 24.9% $28,657 $38,871 Table 2.3: Debt to Assets Ratio (in millions) Company Total Assets Debt to Assets EBIT Interest Expense Ford $224,925 0.60 GM $194,520 0.32 Ford GM $7,993 $8,017 Table 2.4: EBITDA Coverage Ratio (in millions) Company Depreciation + EBIT Interest Expense EBITDA Coverage Amortization Ratio 25.60 37.52 $11,0255773 $8,161 5442 $11,025 $773 $8,161 5443 Company Cash Marketable Securities Accounts Receivables Quick Ratio $101.975 1.68 $14,272 $20,904 $15,238 58.163 $8.337 8.44 0.72 Ford GM Industry Based on these findings Ford Motor Company and General Motors are both safe short-term investment; the difference li in inventory values and prepaid assets. Capital Structure and Solvency A company's total debt to equity ratio gives the stockholder good idea of the risk they are going to make if looking to inv According to the assigned text, the total debt to equity ratio equals all long-term debt plus all short-term debt, divided by stockholders' equity. "This ratio is a measure of solvency, indicating whether or not a company can generate sufficient to repay long term obligations." (Easton, 2020, ) Ford Motor Company and General Motors both hold more debt than equi Table 2.1: Total Debt to Equity Ratio (in millions) Company Long Term Debt Short Term Debt Stockholders' Equity Total Debt to Equity Ratio 4.70 1.58 2.36 Ford GM $120,731 $43,549 Industry Ford's debt to equity ratio is three times General Motors' rat and roughly 1.5 times that of the industry, suggesting the company relies more heavily on debt financing than most competitors. "Too much borrowing is risky in that borrowed money must be repaid with interest. The level of debt a comp can effectively manage is directly related to the stability and reliability of its operating cash flows." (Easton, 2020,) $13,902 $19.562 Table 2.2: Operating vs. Non-Operating Return (in millions) Company ROERNOA Non-Operating Return Ford 27.8 7.9% 19.8% GM 25.2% 16.2% 9.0% Industry 24.9% $28,657 $38,871 Table 2.3: Debt to Assets Ratio (in millions) Company Total Assets Debt to Assets EBIT Interest Expense Ford $224,925 0.60 GM $194,520 0.32 Ford GM $7,993 $8,017 Table 2.4: EBITDA Coverage Ratio (in millions) Company Depreciation + EBIT Interest Expense EBITDA Coverage Amortization Ratio 25.60 37.52 $11,0255773 $8,161 5442 $11,025 $773 $8,161 5443
Expert Answer:
Answer rating: 100% (QA)
Step 3 Calculate the Cost of Capital The cost of capital is the weighted average cost of debt and eq... View the full answer
Posted Date:
Students also viewed these accounting questions
-
A firm with a cost of capital (COC) of 13% is evaluating four capital projects. The internal rates of return (IRR) are as follows: Project.IRR 1..15% 2..11% 3..12% 4..14% Which project(s) the firm...
-
Management of a firm with a cost of capital of 12 percent is considering a $100,000 investment with annual cash flow of $44,524 for three years. a. What are the investments net present value and...
-
We had been operating our company like a family, but maybe we're too big to operate that way. I think some of our people have gotten lazy, and our performance has suffered. That is why I asked for...
-
Reset all of the assumptions to the original values. Then assess the sensitivity of the impairment test results by changing the following assumptions listed below. Assumption Name: Revised...
-
Refer back to the hypothetical Sun City Savings and Loan case presented in this chapter, and consider each of the following independent situations: a. Suppose that Pina, Johnson & Associates also...
-
Use Solver to create a Sensitivity Report for question 22 at the end of Chapter 3 and answer the following questions. a. Suppose the cost of the first two compounds increases by $1.00 per pound and...
-
What is a reporting objective? How is it determined?
-
Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2008. 1. Pirates Co. has developed the...
-
Question Content Area Jamison Company produces and sells Product X at a total cost of $1,800 per unit, of which $1,220 is product cost and $580 is selling and administrative expenses. In addition,...
-
Compare the forward quotes, money market hedges and options with each other to determine the best exchange rate hedge for France (Complete Table 5 on the separate answer sheet) Calculate the exchange...
-
1- For simple supported beam, find the reactions at A and C. Draw the Shear Force Diagram and Bending Moment Diagram showing the values at A, B, C and D. 2- Determine the value and location of the...
-
Ed died on November 1 of the current year. The alternate valuation method was not elected. The assets in his estate as of the date of death were as follows: Home $ 3 0 0 , 0 0 0 Life insurance (...
-
What would be your recommendations to Rodriguez regarding the selection of a project? What risk factors have you taken into account while arriving at this decision?
-
High Energy Entertainment will pay a dividend of $1.30 per share this year. This dividend is expected to grow by 5% each year in the future. What will be the current value of a single share of High...
-
To guarantee adequate curing, each layer in a SLA process is twice scanned, once in x-direction and the other in y-direction (i.e., the WEAVE pattern). Today, we'll construct a cube of 25 x 25 x 25...
-
1) What are the steps required to get ready a tractor for a mowing operation? 2) What are the steps required to get ready a baler field operation? 3) Explain the process of finishing a bale with the...
-
Exercise 1-24 (Algo) Linking the statement of retained earnings and balance sheet LO P2 Mahomes Company reported the following data at the end of its first year of operations on December 31. Cash...
-
State whether each statement is true or false. If false, give a reason. {purple, green, yellow} = {green, pink, yellow}
-
What kinds of foreign exchange risk would a U.S. company face that is exporting goods to Mexico? What kinds of things would you monitor to determine what will happen to the value of the Mexican peso?
-
Extract the annual report of a Fortune Global 500 company from a country different from your home country; use the site www.glgc.com/g600.html, or...
-
Plan a study term abroad. What would you want to learn and why? How would this change if you were a business?
Study smarter with the SolutionInn App