Werkcollege financiering voor vastgoedkunde
Hoofdstuk 1. Corporate Finance an the Financial Manager
Vraag 1. What is the most important difference between a corporation and all other
organizational forms?
The distinguishing feature of a corporation is that it is a legally defined, artificial being (a
judicial person or legal entity), separate from its owners. As such, it has many of the legal
powers that people have. It can enter into contracts, acquire assets, incur obligations, and it
enjoys protection under most jurisdictions against the seizure of its property.
Vraag 2. What does the phrase limited liability mean in a corporate context?
When an investor’s liability is limited to her investment.
Vraag 4. What are the main advantages and disadvantages of organizing a firm as a
corporation?
Because a corporation is a legal entity separate and distinct from its owners, it is solely
responsible for its own obligations. Consequently, the owners of a corporation (or its
employees, customers, etc.) are not liable for any obligations the corporation enters into.
Similarly, the corporation is not liable for any personal obligations of its owners.
Limited liability, veel belasting.
Vraag 10. Corporate managers work for the owners of the corporation. Consequently, they
should make decisions that are in the interests of the owners, rather than in their own
interests. What strategies are available to shareholders to help ensure that managers are
motivated to act this way?
This agency problem is commonly addressed in practice by minimizing the number of
decisions managers make that require putting their self-interest against the interests of the
shareholders. For example, managers’ compensation contracts are designed to ensure that
most decisions in the shareholders’ interest are also in the managers’ interests; shareholders
often tie the compensation of top managers to the corporation’s profits or perhaps to its
share price.
Hoofdstuk 2. Introduction to Financial Statement Analysis
Vraag 4. Consider the following potential events that might have occurred to Global on
December 30, 2010. For each one, indicate which line items in Global’s balance sheet would
be affected and by how much. Also indicate the change to Global’s book value of equity.
a. Global used $20 million of its available cash to repay $20 million of its long term debt.
Long term liabilities would decrease by $20.0 million, and cash would decrease by
the same amount. The book value of equity would be unchanged.
b. A warehouse fire destroyed $5 million worth of uninsured inventory.
Inventory would decrease by $5.0 million, as would the book value of equity.
c. Global used $5.0 million on cash and $5.0 million in new long-term debt to purchase
a $10.0 million building.
Long term assets would increase by $10.0 million, cash would decrease by $5.0
million, and long-term liabilities would increase by $5.0 million. There would be no
change to the book value of equity.
d. A large customer owing $3.0 million for products it already received has declared
bankruptcy, leaving no possibility that Global would even receive payment.
Accounts receivable would decrease by $3.0 million, as would the book value of
equity.
e. Global’s engineers discover a new manufacturing process that will cut the cost of its
flagship product by over 50%.
This event would not affect the balance sheet.
f. A key competitor announces a radical new pricing policy that will drastically undercut
Glabal’s prices.
This event would not affect the balance sheet.
Vraag 8. In March 2005, General Electric (GE) had a book value of equity of $113 billion,
10.6 billion shares outstanding, and a market price of $36 per share. GE also had cash of
$13 billion, and total debt of $370 billion. Four years later, in early 2009, GE had a book
value of equity of $105 billion, 10.5 billion shares outstanding with a market price of $10.80
per share, cash of $48 billion, and total debt of $524 billion. Over this period, what was the
change in GE’s
a. Market capitalization?
Market capitalization: the Total market value of equity; equals the market price per
share times the number of shares.
Market capitalization 2005. (10.6 shares) x ($36) = 381.6 billion
Market capitalization 2009. (10.5 shares) x ($10.80) =113.4 billion
Change: 381.6 – 113.4 = -268.2 billion
b. Market-to-book ratio?
Market-to-book ratio = Market Value of Equity / Book value of equity
Market to book ratio 2005. 381.6 / 113 = 3.38
Market tot book ratio 2009. 113.4 / 105 = 1.08
Change: 3.38 – 1.08 = -2.30
c. Book debt-equity ratio?
Book Debt-Equity Ratio = Total Debt / Book value of Equity
Book Debt-Equity Ratio 2005. 370 / 113 = 3.27
Book Debt-Equity Ratio 2009. 524 / 105 = 4.99
Change: 1.72
d. Market debt-equity ratio?
Market Debt-Equity Ratio = Total Debt / Market value of equity
Market Debt-Equity Ratio 2005. 370 / 381.6 = 0.97
Market Debt-Equity Ratio 2009. 524 / 113.4 = 4.62
Change: 3.65
e. Enterprise value?
Enterprise value = Market Value of Equity + Debt – Cash
Enterprise value 2005. 381.6 + 370 – 13 = 738.6
Enterprise value 2009. 113.4 + 524 – 48 = 589.4
Change: -149.2 Billion
Vraag 12. Local Co. has sales of $10 million and cost of sales of $6 million. Its selling,
general and administrative expenses are $500,000 and its research and development is $1
million. It has annual depreciation charges of $1 million and a tax rate of 35%.
a. What is Local’s gross margin?
Gross Margin = Gross Profit / Sales
Gross Margin Local Co. (10-6) / 10 = 0,4 (40%)
b. What is Local’s operating margin?
Operating Margin = Operating Profit / Sales
Operating Margin Local Co. (4-0,5,1,1) / 10 = 0,45 (15%)
c. What is Local’s net profit margin?
Net Profit Margin = Net Income / Sales
Net Profit Margin Local Co. (500.000 x 0,65) / 10 = 0,0975 (9,75%)
Vraag 21. You are analyzing the leverage of two firms and you note the following (all values
in millions of dollars):
Firm A
Firm B
Debt
500
80
Book Equity
300
35
Market Equity
400
40
Operating Income
100
8
Interest Expense
50
7
a. What is the market debt-to equity ratio of each firm?
Market Debt-Equity Ratio = Total Debt / Market value of equity
Market Debt-Equity Ratio Firm A. 500 / 400 = 1.25
Market Debt-Equity Ratio Firm B. 80 / 40 = 2
b. What is the book debt-to-equity ratio of each firm?
Book Debt-Equity Ratio = Total Debt / Book value of Equity
Book Debt-Equity Ratio Firm A. 500 / 300 = 1.67
Book Debt-Equity Ratio Firm B. 80 / 35 = 2.29
c. What is the interest coverage ratio of each firm?
Interest Coverage Ratio (TIE) = Operating Income / Interest Expense
Interest Coverage Ratio Firm A. 100 / 50 = 2
Interest Coverage Ratio Firm B. 8 / 7 = 1.14
d. Which firm will have more difficulty meeting its debt obligations?
When this ratio is high, it indicates that the firm is earning much more than is
necessary to meet its required interest payments.
B, want lage ICR.
Vraag 22. For 2010, Wal-Mart and Target had the following information (all values are in
millions of dollars):
Sales (Income
Statement)
Wal-Mart
Target
408,214
65,357
Cost of Goods
Sold (Income
Statement)
304,657
45,583
Accounts
receivable
(Balance Sheet)
4,144
6,966
Inventory
(Balance Sheet)
30,254
7,179
a. What is each company’s accounts receivable days?
Accounts receivable: amounts owed to a firm by customers who have purchased
goods or services on credit.
Accounts receivable days. Accounts Receivable / Average Daily Sales.
Accounts receivable days Wal-Mart. 4,144 / (408,214 / 365) = 3.7
Accounts receivable days Target. 6,966 / (65,357 / 365) = 38.9
b. What is each company’s inventory turnover?
Inventories: A firm’s raw materials as well as its work-in-progress and finished goods.
Inventory turnover = Cost of Goods Sold / Inventory
Inventory turnover Wal-Mart. 304,657 / 30,254 = 10.07
Inventory turnover Target. 45,583 / 7,179 = 6.35
c. Which company is managing its accounts receivable and inventory more efficiently?
Wal-Mart > Binnen 3,71 dagen = sneller
Vraag 24. In January 2009, American Airlines (AMR) had a market capitalization of $1.7
billion, debt of $11.1 billion, and cash of $4.6 billion. American Airlines had revenues of $23.8
billion. British Airways (BABWF) had a market capitalization of $2.2 billion, debt of $4.7
billion, cash of $2.6 billion, and revenues of $13.1 billion.
a. Compare the market capitalization-to-revenue ratio (also called the price-to-sales
ratio) for American Airlines and British Airways.
Wall mart. 1,7 / 23,8 = 0.071
Target. 2,2 / 13,1 = 0.168
b. Compare the enterprise value-to-revenue ratio for American Airlines and British
Airways.
Wall mart. (1,7 + 11,1 – 4,6) / 23,8 = 0.345
Target. (2,2147 – 2,6) / 13,1 = 0.328
c. Which of these comparisons is more meaningful? Explain.
The enterprise value-to-revenue ratio is more useful when the leverage of firms is
quite different, as it is here. You cannot meaningfully compare the market
capitalization-to-revenue ratio when firms have different amounts of leverage, as
market capitalization measures only the value of a firm’s equity.
Vraag 30. Suppose your firm receives a $5 million order on the last day of the year. You fill
the order with $2 million worth of inventory. The customer picks up the entire order the same
day and pays $1 million up front in cash; you also issue a bill for the customer to pay the
remaining balance of $4 million within 40 days. Suppose your firm’s tax rate is 0% (i.e.,
ignore taxes). Determine the consequences of this transaction for each of the following:
a. Revenues
+5
b. Earnings
+3
c. Receivables +4
d. Inventory
-2
e. Cash
+1