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Financial Management
For many years, women’s professional basketball struggled for consistency in the United States. Since 1978, when the Women’s Professional Basketball League (WBL) was formed, leagues have had
What is financial management? How does financial management differ in the sport industry as compared to other industries?
Why does the definition of the sport industry affect the calculation of its size? How should the industry be defined?
Which has the greater impact on financial management: the structure of a league or the structure of a team?
Many factors affect the economics of sport. What are some not discussed in the chapter? How do they affect financial management within the industry?
Why is sustainability in the sport industry linked to the green movement?
What legislative actions currently being considered in Congress might affect the financial management of sport?
What is a T-account and how is it utilized in double-entry book keeping?
What are the three major sections of the balance sheet? For each of these sections, provide at least one example of the items that would be found there.
What is the primary difference between an income statement and a statement of cash flows?
What is the purpose of computing financial ratios?
If an organization’s current ratio value is below 1.00, what might that suggest about the organization?
What information do leverage ratios provide?
Why is the price-to-earnings ratio so widely used among investors?
Calculate the degree of financial gearing under both the low-geared and the high-geared option when operating profits are:(a) £60m, and(b) £70m.
Calculate the degree of operating gearing for Strategy 2 at the different levels of sales output mentioned in Example 2.7.Data from Example 2.7Lethargo plc has recently been formed to produce vacuum
Unicorn Engineering Ltd is considering three possible investment projects: X, Y and Z. The expected pattern of cash flows for each project is as follows:The business has a cost of capital of 12
Town Mills Ltd is a wholesale business. Extracts from the business’s most recent financial statements are as follows:The levels of trade receivables and trade payables increased by 10 percent, by
Mistor S.A. is a large, event-management business based in Spain that has recently agreed to organise a large trade fair in the US. On 1 August Year 7, the business expects to receive \($10\) million
Robinson plc is an international construction business that is based in the UK. The business expects to receive €10 million in six months’ time as the final payment for a bridge that the business
Enumerate the sources of several limitations to accounting data.
Compute and interpret the financial ratios covered.
From the following information, construct a simple income statement and a balance sheet: Sales Finished goods Long-term debt Raw materials $1,000,000 200,000 300,000 100,000 Cash 50,000 Cost of goods
Given the following information, construct the firm’s balance sheet: Cash and cash equivalents Accumulated depreciation on plant and equipment Plant and equipment Accrued wages Long-term debt
Given the following information, compute the current and quick ratios: Cash $100,000 Accounts receivable 357,000 Inventory 458,000 Current liabilities 498,000 Long-term debt 610,000 Equity 598,000
Jersey Medical earns $9.50 a share, sells for $90, and pays a $6 per share dividend. The stock is split two for one and a $3 per share cash dividend is declared.a. What will be the new price of the
Calculate earnings per share, earnings per preferred share, and times-preferreddividend-earned.
Enumerate the features of convertible securities.
Compute rates of return.
Determine a fund's net asset value.
Enumerate the sources of return from an investment company.
Calculate the break-even level of output.
Determine an investment's payback period.
Compute the cost of capital.
Explain why a firm's cost of capital changes with changes in its capital structure.
Determine the firm's optimal capital structure.
Calculate an investment's net present value and internal rate of return.
Use regression analysis to forecast assets and liabilities that change with sales.
Add the impact of changes in any assets that do not spontaneously change with sales.
Contrast the cash budget with the income statement.
Construct a cash budget.
Interpret a cash budget's bottom line.
Differentiate earnings from cash.
Calculate the economic order quantity.
Enumerate the components of credit policy.
Construct a repayment schedule.
Contrast operating and financial leases.
Explain the relationship between the market price of a stock and the prices of put and call options.
Define money and determine how the money supply is measured.
Develop a yield curve and contrast positive and negative yield curves.
Differentiate the direct and indirect transfer of savings to users of funds.
Enumerate the primary assets and liabilities of a commercial bank,
Describe several regulations that apply to the banking system.
Differentiate required and excess banks reserves.
Explain the role of FDIC.
Compare the assets of life insurance companies and commercial banks.
Contrast the various money market instruments.
Explain the role of investment bankers.
Describe the components of a public sale of securities.
Differentiate a best effort agreement from a firm commitment.
Explain the purpose of a shelf registration and a private placement.
Identify the regulatory body that enforces the federal securities laws.
State the primary purpose of the federal securities laws.
Trace the mechanics of a stock purchase or sale.
Given the following information, determine the balance on the U.S. current account and capital accounts: imports net income from foreign investments foreign investments in the United States
Solve time value of money problems.
Interpret the results of your solutions.
Use an interest table or a financial calculator.
Construct a loan amortization schedule.
You annually invest $1,500 in an individual retirement account (IRA) starting at the age of 20 and make the contributions for 10 years. Your twin sister does the same starting at age 30 and makes the
A company has two investment possibilities, with the following cash inflows:If the firm can earn 7 percent in other investments, what is the present value of investments A and B? If each investment
Inflation is a general increase in prices and may be measured by the Consumer Price Index (CPI). The following are several problems related to price increases.a. In 1984 the CPI was 100; 30 years
You have an IRA worth $200,000 and want to start to make equal annual withdrawals (that is, distributions from the account) for 20 years. You anticipate earning 5 percent on the funds. (To facilitate
You contribute $1,000 annually to a retirement account for eight years and stop making payments at the age of 25. Your twin brother (or sister . . . whichever applies) opens an account at age 25 and
The chief executive officer of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year:Required:(a) Show, by using the data given, how
Boswell Enterprises Ltd is reviewing its trade credit policy. The business, which sells all of its goods on credit, has estimated that sales revenue for the forthcoming year will be £3 million under
There is a further reason why certain accounting policies may be adopted rather than others. This reason was discussed in Chapter 3. Can you recall what it is?
What is the shareholder value figure for the business in Example 11.2? Would the sale of the shares at £11 per share really add value for the shareholders of Bortex plc?Example 11.2The directors of
Take a look again at the calculations. Why should we be cautious when drawing conclusions?
Can you work out the EVA® for the second year of Scorpio plc in Example 11.3?Example 11.3Scorpio plc was established two years ago and has produced the following statement of financial position and
Calculate the EVA® margin for the second year of Scorpio plc in Example 11.3.Example 11.3Scorpio plc was established two years ago and has produced the following statement of financial position and
Try to identify at least one practical problem that may arise when using SVA calculations to reward managers.
It was mentioned earlier that the EVA® generated during a period is rarely reported to shareholders. Why might this be a drawback for implementing a EVA®-based bonus scheme?
Why is it important to identify when the value was created and how could this be done?
How could the problems of time periods and scale mentioned above be overcome?
What benchmark would be most suitable?
Can you think of any circumstances under which re-issuing share options at a lower price to directors might be justified?
From the business viewpoint, is there a potential disadvantage to this feature of PSPs?
Advocates of the shareholder value approach argue that, by delivering consistent and sustainable improvements in shareholder value, a business will benefit several stakeholder groups. The performance
Which of the three types of mergers discussed above would achieve this objective? What are the potential problems of this kind of merger from the consumer’s point of view?
Why might shares in the bidding business lose value as a result of a takeover of a target business? Try to think of two reasons why this may be so.
What other reason might there be for rejecting a takeover bid?
We came across this tactic when discussing dividends in Chapter 9. Can you recall the reason why it might fail?
Calculate the net assets (book value) of an ordinary share in CDC Ltd.
Calculate the value of an ordinary share in CDC Ltd using the net assets (liquidation)method.
Calculate the value of an ordinary share in CDC Ltd using the net assets (replacement cost) method.
Calculate the value of an ordinary share in CDC Ltd using the P/E ratio method.
Calculate the value of an ordinary share in CDC Ltd using the dividend yield method.
Assume that CDC Ltd has a constant dividend payout and the cost of ordinary share capital is estimated at 12 percent. Calculate the value of an ordinary share in the business using the discounted
Calculate the value of an ordinary share in CDC Ltd using the free cash flow method.
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