Can anyone please help me. I do not understand this material.

ECO389 Corporate Finance Problem Set 3 Fall 2015 Professor: Jake Zhao Due: 10/21/15 Use Global's income statement, balance sheet, and cash \u001dow statement from the lecture notes. 1. Consider the following potential events that might have taken place at Global Conglomerate on December 27, 2012. For each one, indicate which line items in Global's balance sheet would be a\u001bected 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 $15 million of its available cash to repay $15 million of its long-term debt. (b) A warehouse \u001cre destroyed $4 million worth of uninsured inventory. (c) Global used $3 million in cash and $3 million in new long-term debt to purchase a $6 million building. (d) A large customer owing $2 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 \u001dagship product by over 50%. (f) A key competitor announces a radical new pricing policy that will drastically undercut Global's prices. 2. Suppose that in 2013, 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, price per share of Global's stock is $14 in 2012, and taxes are the same percentage of pretax income as in 2012. (a) What is Global's EBIT in 2013? (b) What is Global's net income in 2013? (c) If Global's P/E ratio and number of shares outstanding remains unchanged at 3.6 million, what is Global's share price in 2013? 1 3. Consider the following potential events that might have taken place at Global Conglomerate on December 27, 2012. For each one, indicate which line items in Global's cash \u001dow statement would be a\u001bected and by how much. (In all cases, ignore any tax consequences for simplicity.) (a) Global reduces its dividends paid on December 27, 2012 by 5 cents per share. (b) Global purchases a new machine for $2 million which is \u001cnanced by equity, debt, and cash in equal proportions. (c) Global realizes that its plant is deteriorating faster than previously anticipated so that it raises its depreciation and amortization expenses by 25%. (d) Global decides to pay back an additional $1 million to a supplier before the end of the year as a nice gesture. 4. Can a \u001crm with positive net income run out of cash? Explain. 5. Choose two \u001crms from an industry that interests you. Use Google \u001cnance to compute the following ratios and statistics for both \u001crms and brie\u001dy interpret the di\u001berences. Make sure to write out the formula as well. (a) Pro\u001ctability ratios: gross margin, operating margin, net pro\u001ct margin (b) Liquidity ratios: current ratio, cash ratio (c) Working capital ratios: accounts receivable days, accounts payable days, inventory turnover (d) Interest coverage ratios: EBIT interest coverage, EBITDA interest coverage (e) Leverage ratios: debt-equity ratio, net debt, debt-to-enterprise value ratio (f) Valuation ratios: P/E ratio, enterprise value to sales ratio, market-to-book ratio (g) Operating returns: return on equity, return on assets, return on invested capital (use 35% as the tax rate) (h) Return on equity decomposed with the DuPont identity 2 ECO389 Corporate Finance Problem Set 3 Fall 2015 Professor: Jake Zhao Due: 10/21/15 Use Global's income statement, balance sheet, and cash \u001dow statement from the lecture notes. 1. Consider the following potential events that might have taken place at Global Conglomerate on December 27, 2012. For each one, indicate which line items in Global's balance sheet would be a\u001bected 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 $15 million of its available cash to repay $15 million of its long-term debt. (b) A warehouse \u001cre destroyed $4 million worth of uninsured inventory. (c) Global used $3 million in cash and $3 million in new long-term debt to purchase a $6 million building. (d) A large customer owing $2 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 \u001dagship product by over 50%. (f) A key competitor announces a radical new pricing policy that will drastically undercut Global's prices. 2. Suppose that in 2013, 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, price per share of Global's stock is $14 in 2012, and taxes are the same percentage of pretax income as in 2012. (a) What is Global's EBIT in 2013? (b) What is Global's net income in 2013? (c) If Global's P/E ratio and number of shares outstanding remains unchanged at 3.6 million, what is Global's share price in 2013? 1 3. Consider the following potential events that might have taken place at Global Conglomerate on December 27, 2012. For each one, indicate which line items in Global's cash \u001dow statement would be a\u001bected and by how much. (In all cases, ignore any tax consequences for simplicity.) (a) Global reduces its dividends paid on December 27, 2012 by 5 cents per share. (b) Global purchases a new machine for $2 million which is \u001cnanced by equity, debt, and cash in equal proportions. (c) Global realizes that its plant is deteriorating faster than previously anticipated so that it raises its depreciation and amortization expenses by 25%. (d) Global decides to pay back an additional $1 million to a supplier before the end of the year as a nice gesture. 4. Can a \u001crm with positive net income run out of cash? Explain. 5. Choose two \u001crms from an industry that interests you. Use Google \u001cnance to compute the following ratios and statistics for both \u001crms and brie\u001dy interpret the di\u001berences. Make sure to write out the formula as well. (a) Pro\u001ctability ratios: gross margin, operating margin, net pro\u001ct margin (b) Liquidity ratios: current ratio, cash ratio (c) Working capital ratios: accounts receivable days, accounts payable days, inventory turnover (d) Interest coverage ratios: EBIT interest coverage, EBITDA interest coverage (e) Leverage ratios: debt-equity ratio, net debt, debt-to-enterprise value ratio (f) Valuation ratios: P/E ratio, enterprise value to sales ratio, market-to-book ratio (g) Operating returns: return on equity, return on assets, return on invested capital (use 35% as the tax rate) (h) Return on equity decomposed with the DuPont identity 2 ECO389 Corporate Finance Problem Set 3 Fall 2015 Professor: Jake Zhao Due: 10/21/15 Use Global's income statement, balance sheet, and cash \u001dow statement from the lecture notes. 1. Consider the following potential events that might have taken place at Global Conglomerate on December 27, 2012. For each one, indicate which line items in Global's balance sheet would be a\u001bected 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 $15 million of its available cash to repay $15 million of its long-term debt. (b) A warehouse \u001cre destroyed $4 million worth of uninsured inventory. (c) Global used $3 million in cash and $3 million in new long-term debt to purchase a $6 million building. (d) A large customer owing $2 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 \u001dagship product by over 50%. (f) A key competitor announces a radical new pricing policy that will drastically undercut Global's prices. 2. Suppose that in 2013, 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, price per share of Global's stock is $14 in 2012, and taxes are the same percentage of pretax income as in 2012. (a) What is Global's EBIT in 2013? (b) What is Global's net income in 2013? (c) If Global's P/E ratio and number of shares outstanding remains unchanged at 3.6 million, what is Global's share price in 2013? 1 3. Consider the following potential events that might have taken place at Global Conglomerate on December 27, 2012. For each one, indicate which line items in Global's cash \u001dow statement would be a\u001bected and by how much. (In all cases, ignore any tax consequences for simplicity.) (a) Global reduces its dividends paid on December 27, 2012 by 5 cents per share. (b) Global purchases a new machine for $2 million which is \u001cnanced by equity, debt, and cash in equal proportions. (c) Global realizes that its plant is deteriorating faster than previously anticipated so that it raises its depreciation and amortization expenses by 25%. (d) Global decides to pay back an additional $1 million to a supplier before the end of the year as a nice gesture. 4. Can a \u001crm with positive net income run out of cash? Explain. 5. Choose two \u001crms from an industry that interests you. Use Google \u001cnance to compute the following ratios and statistics for both \u001crms and brie\u001dy interpret the di\u001berences. Make sure to write out the formula as well. (a) Pro\u001ctability ratios: gross margin, operating margin, net pro\u001ct margin (b) Liquidity ratios: current ratio, cash ratio (c) Working capital ratios: accounts receivable days, accounts payable days, inventory turnover (d) Interest coverage ratios: EBIT interest coverage, EBITDA interest coverage (e) Leverage ratios: debt-equity ratio, net debt, debt-to-enterprise value ratio (f) Valuation ratios: P/E ratio, enterprise value to sales ratio, market-to-book ratio (g) Operating returns: return on equity, return on assets, return on invested capital (use 35% as the tax rate) (h) Return on equity decomposed with the DuPont identity 2