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FINC 5880 – H.W. </o:p> 1- I1- dentify at least FOUR different ways in which a company can finance itself (“obtain funds”):</o:p> </o:p> 2- 2- A portfolio has 40% of its assets...

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FINC 5880 – H.W.

1- I1- dentify at least FOUR different ways in which a company can finance itself (“obtain funds”):

2- 2- A portfolio has 40% of its assets invested in stocks and 60% invested in bonds. If the stocks have a return of 6% and the bonds have a return of 9%, calculate the portfolio return:

3- 3- ABC plumbing supply company currently give credit (“supplier credit”) to all its customers, but is having high levels of bad debts. Identify THREE different ways that the company can reduce its bad debts:

4- 4- AAA company shows the following financial results (all amounts in millions):

o Sales $500

o Cost of goods sold: $260

o Operating Expenses: $90

o Interest Expenses: $40

o Income Tax Expense: $5

o Cash: $30

o Inventory: $35

o Accounts Receivable: $55

o Net Fixed Assets: $100

o Accounts Payable: $40

o Short-term Bank Loans: $20

o Long-term Bank Loans: $80

o Paid-In Capital: $10

o Retained earnings: ________ (please calculate it)

o # of shares: 9 million

o Year-End Stock Price: $110/share

Using the above information, please calculate the following (note: all information is relevant): Please show your work.

a) Net Income: _______

b) Gross Margin: ______

c) Gross Margin %: _______

d) Profit Margin %: _______

e) Return on Assets: _______

f) Return on Equity: _______

g) Debt Ratio: ________

h) Current Ratio: _______

i) If the beginning retained earnings was $65, how much was the dividend? ________

j) Dividend per share: ________

k) Earnings per share: _______

l) Price/Earnings Ratio: ______

m) Market cap: _________

n) Effective income tax rate: ________

Answered Same DayDec 18, 2021

Solution

Shakeel answered on Dec 19 2021
47 Votes
FINC 5880 – H.W.
1- Identify at least FOUR different ways in which a company can finance itself (“obtain funds”):
The sources of funds are –
Equity
Long term debt
Preference shares
Debentures
Equity is an important source of fund where the required capital is divided into n number of equal parts and then such parts (shares) are issued in public for subscription. The funds so raised are although time taking and costly but no fixed obligation is attached with it. Equity is also most lucrative financial avenue for investment as it gives regular income in the form of dividend as well as capital gain.
Long term debts are loans taken from bank or any financial institution. It may be secured or unsecured. It is easy, quick and cheaper to raise the fund but fixed obligation of interest payment is attached with it. Therefore, company’s risk of insolvency increases with increase of debt in its capital.
Preference shares and debentures are also considered as source of finance. They are similar in structure as both have fixed maturity period and fixed obligations – interest in the case of debt and dividend in case of preference shares.
2- A portfolio has 40% of its assets invested in stocks and 60% invested in bonds. If the stocks have a return of 6% and the bonds have a return of 9%, calculate the portfolio return:
    The portfolio’s return    = Proportion of equity*Cost of equity + Proportion of Debt*Cost
                                     Of debt
                = 0.40*6% + 0.60*9%
                = 2.40% + 5.40%
                = 7.80%    
3- ABC plumbing supply company cu
ently gives credit...
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