11:59 l 4G X homwork1.docx T. (Firm and Organizations) Who are the highest authorities in a corporation? Describe how they are related to shareholders and managers. 2. (Cash Flow Statement) Consider the following potential events that might have taken place at Global Conglomerate on December 30, 2015. 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. (In all cases ignore any tax consequences for simplicity.) a. Global used $20 million of its available cash to repay $20 million of its long-term debt. b. A warehouse fire destroyed $5 million worth of uninsured inventory c. Global used $5 million in cash and $5 million in new long-term debt to purchase a $10 million building d. A large customer owing $3 million for products it already received declared bankruptcy, leaving no possibility that Global would ever receive payment e. Global's engineers discover a new manufacturing process that will cut the cost of its flagship product by over 50% f. A key competitor announces a radical new pricing policy that will drastically undercut Global's prices. 3. Suppose that in 2016, Global launches an aggressive marketing campaign that boosts sales by 15 % However, their operating margin falls from 5.57% to 4.50%. Suppose that they have no other income, interest expenses are unchanged, and taxes are the same percentage of pretax income as in 2015. a. What is Global 's EBIT in 2016? b. What is Global's net income in 2016? c. If Global's P/E ratio and number of shares outstanding remains unchanged, what is Global's share price in 2016 4. At the end of 2015, Apple had cash and short-term investments of $41.60 billion, accounts receivable of $35.89 billion, current assets of S89.38 billion, and current liabilities of $80.61 billion. a. What was Apple's current ratio? b. What was Apple's quick ratio? c. What was Apple's cash ratio? d. At the end of 2015, HPQ had a cash ratio of 0.35, a quick ratio of 0.73 and a current ratio of 1.15. What can you say about the asset liquidity of Apple relative to HPQ? 5. For fiscal year 2015, Costco Wholesale Corporation (COST) had a net profit margin of 2.05 % , asset tumover of 3.48, and a book equity multiplier of 3.15. a. Use this data to compute Costco's ROE using the DuPont Identity. b. If Costco's managers wanted too increase its ROE by one percentage point, how much higher would their asset turnov 11:59 l 4G X homwork1.docx quick ratio of 0.73 and a current ratio of .15. What can you say about the asset liquidity of Apple relative to HPQ? . For fiscal year 2015, Costco Wholesale Corporation (COST) had a net profit margin of 2.05% , asset tumover of 3.48, and a book equity multiplier of 3.15. a. Use this data to compute Costco's ROE using the DuPont Identity b. If Costco's managers wanted to increase its ROE by one percentage point, how much higher would their asset turnover need to be? c. If Costco's net profit margin fell by one percentage point, by how much would their asset turnover need to increase to maintain their ROE? 6. The Xia Corporation is a company whose sole assets are $100,000 in cash and three projects that it will undertake. The projects are risk-free and have the following cash flows Cash Flow Today -$20,000 Project Cash Flow in One Year A $28,000 B -$13,000 $29,000 $75,000 C -$56,000 Xia plans to invest any unused cash today at the risk- free interest rate of 9.2 %. In one year, all cash will be paid to investors and the company will be shut down. a. What is the NPV of each project? Which projects should Xia undertake and how much cash should it retain? b. What is the total value of Xia's assets (projects and cash) today? c. What cash flows will the investors in Xia receive? Based on these cash flows, what is the value of Xia today? d. Suppose Xia pays any unused cash to investors today, rather than investing it. What are the cash flows to the investors in this case? What is the value of Xia now? c. Explain the relationship in your answers to parts (b). (c), and (d)