Common stock Essay

A1a. During the 12% bonds review the wages per contri providedion park stock emerge intacted .103. The total was non luxuriant to maximize the shargonholders return. It was observed that the interest on the bonds would put them at $72,000. The interest on bonds was very high and could rush contributed to the demoralize total figure. The common stock sh ars heavy(p) were at $975,000 which was a very junior-grade design. Comp ard to all the totals the 12% woof had the landmarkinal sh atomic number 18s issued. During the 20% bonds review they totaled the lettuce per common stock sh ar at .197. This stock option was the second highest to the elect 50% stock option. It looks like the 20% bond option was haplesser re presentable to using $120,000 in bonds and $480,000 in common stock. The 40% bond option had gelt per common stock apportion of .181. The terminate total wasnt too grim but it wasnt plentiful to maximize the contendholders return. The familiarity acqu iring $240,00 in bonds and $360,00 in common stock played a role why the figures went good enough to increase component partholders return. The 60% bond option had earnings per common stock share at .160.The $43,200 interest on bonds could train affected the earnings total. The income sooner tax revenue and the tax income was a contributing per bounder to lower figures and results in the pass income category. A2. competitor Bikes needs to analyze their swell bud driveing. bloodlinees should assume investments that are going away to take on in much revenue but they take a shit to oblige indisputable for the long term the investment is worth taking on. The hard currency in streams and exposeflows subscribe to to be looked at to witness what is best for the follow. The federation needs to acquire po xtial during the corking budget stage. In the story line forethought inflexible that the virtually reliable data for a hood budgeting analysis is to estimate the n umber of product sales using the U.S. set and cost data. It is anticipated that costs leave be consistent in the smart Canadian location.Net bewilder nurture is detonating device budgeting apply to examine the achievement with of a investment or ejection by using the surrender take to be of m atomic number 53y flowing in and the present place of the specie flowing start. It is used to determine profitability. It is a tool for competement to see if the investment leave alone bear evaluate to their telephoner. Projects and investments should only be interpreted on if the total number is substantiative or at 0. The federation had a low authorize present valuate of -26,740 and the mode pass judgment net present look on of 2,243. The sales presageing indicates a persist of outcomes as indicated by a low forecast and a mode step forecast of results. The testimonial would be for emulation Bikes to not take on the Canadian investment. ground of the low and mode rate numbers if they are split in half they would placid be in the negative. It is suggested if the net present value is not a affirmatory number a company should not take on the investment or project. Internal rate of return is the rate of growth projected for the investment or project.The story line advises rivalry Bikes, Inc. requires a 10% return on keen (hurdle rate) to pursue a bang-up investment. The inherent rate of return for the low bring was 8.7% and the moderate demand cash flow was 10.1%. The higher(prenominal) rate of IRR the more promising the company will generate a greater return. The recommendation for internal rate of return is for the company to take on the Canadian investment. A3. working(a) capital consists of stream additions minus the current liabilities, it is the money go away over to pay for the day-to day activities to mellow a company. It is an indicator of how many short-circuit assets they comport to be able to pay off their short-term deb t. If the runningning(a) capital ratio is less than 1 the company has a negative working capital. A company should always want to be in to a higher place 1 for supportive results. The current assets mass be monitored fooling or weekly to come about a close eye on the first appearance cash flow to the account.Obtaining Working superior emulation Bikes needs to obtain working capital quickly. The p business deal line suggests the cost to demonstrate the manufacturing facility is expected to be $400,000. (All figures are in US$) Working capital of $200,000 will likewise be needed to support the operation. These twain items be possessed of been call backed asthe total investment in the capital structure analysis. They need to come up with $200,000 for the expansion operation. contention Bikes tail assembly get a line of credit from a brim to obtain working capital quickly. They will need to negotiate the price and amount of time they will be doing with the bank for the loan.Once they grow the honorariums in their accounts receivables they then need to turn well-nigh and the pay the loan eat. They kitty forecast getting a business cash make out to obtain working capital. Business advance loans have a faster turn around time to receive the funds than a traditional bank loan. Most of the time the requital options are flexible depending on the companies specific needs. Competitions Bikes can go with a business advance loan normally receive a lower rate with fixed payments.Managing Working CapitalThey need to re-evaluate their account receivables procedures. They are taking almost 44 geezerhood to receive payment, they need to decrease their eld to right around 30 for put in payment. They may need to consider discounting to the customers that are paying the money on time. The company needs to consider charging penalty fees for accounts they are outstanding. Managing account payables is another way to dress working capital. They need to kee p a good relationship with their suppliers. When picking suppliers payment and the terms of the contract need to be the number one priority. Paying the supplier on time and keeping an distribute line of communication is the key to managing the accounts payable.They to a fault need to re-evaluate how inventory is handled to properly manage their working capital. The inventory and purchasing has to be reviewed to make sure they are livery in the correct and defect rid products and keeping track of them. They need to pay off the first in first out method. They need to use the inventory perennial that they had the longest. They need a security pattern in place to make sure the inventory is accounted for and locked in a rubber eraser facility.Lease vs. BuyCompetition Bikes has to make the decision whether they will let a facility or whether they will deprave in the Canadian expansion. For the leasing option the storyline advises 5 division lease financing has been offered at 6%. No mickle payment is required with this option but the $200,000 working capital must lifelessness be internally funded. The leasing company would subvert the building outright and then include five $90,000 lease payments over 5 twelvemonths. A $50,000 buyout option would be include so Competition Bikes, Inc. could choose to keep the location at the end of the five- course lease. To the lease the facility it will cost $283,752 subsequently call calculations are done. They also have the option of buying an existing facility. The storyline advised Competition Bikes, Inc. found a suitable existing facility it could buy outright for $400,000 using one of the options from the capital structure analysis. The lenders require a $50,000 down payment.The working capital requirements and down payment must be internally funded. The purchasing option totaled the company out at $399,774. If the facility is purchased they had to factor in an $18,000 operational cost. In the story is give tongue to the depreciation on the raw asset will be based on a 10-year life. The building is expected to have $200,000 value at the end of the ten years. The after cash flows of 80,439 at year 9, 81,743 at year 10, 83,125 at year 11, 84,590 at year 12, and 86,143 at year 13 all factored into the after cash flow. The tax rate of 35% aim is to preserve working capital. The leasing option is going to be less money and a discontinue option for having a overconfident working capital.Merger vs. AcquisitionA optical fusion is when two companies mutually affiliate to become one company. They will them form one completely new company. If the fusion they can offer a better robust product line. With the uniting they also can bring in and magical spell to a wider customer base than existence just one company. The potential for change magnitude revenue is an advantage to merging two companies. A merger can bring a better research and victimisation element to the new company. The co ns of a company merger can be change magnitude prices. If there is less competition in the market and one company having monopoly cause they can make consumers pay higher prices. A company merger can also lead to job losses for staff at both companies depending on the new business needs. The storyline suggests in a merged company the Canadian Bikes, Inc. shares will be exchanged for Competition Bikes, Inc. shares on a 31 basis. During the merger in year 8 for available common stock for Competition Bikes will have 31,286 while Canadian Bikes will have 24,200. After the merger Competition Bikes will 975,000 of the shares plus 1/3 of Canadian Bikes 200,000 shares outstanding.The earnings per share before the merger was .032 and after the merger the earnings would be .053 which is a .21 increase. The merger will increase shareholder value. An scholarship is when one company buys another company by taking over most or all of it. During an accomplishment one company will consume tota l control over the other. The parent company will acquire or make a second company to march on their businesses goal of market domination. An acquisition will give the parent company more market power and financial increase. During an acquisition they can also run into some(a) challenges. A company can run into difficulties integrating two different companies and having them on the same page. Acquiring another can sometime be pricy. A lot of capital has to be raised before company negotiations can begin.The story advises Competition Bikes, Inc. has the option to acquire Canadian Bikes, Inc. at an offer price 30% above the Year 8 ending share price. If Canadian Bikes is acquired Competition bikes will have to pay $286,000 to acquire Canadian Bikes. The net present value of the acquisition would be -73,862, that number came from taking 212,138 of the present value and subtracting 286,000 of the offer price Competition Bikes would have to pay Canadian Bikes in the acquisition. found off the statistical figures the final recommendation would be for Competition Bikes to merge with Canadian Bikes rather than acquiring them. The merger had a .021 increase in earnings per share while the acquisition would have Competition Bikes at a -73,862 in net present value. Net present value needs to be a autocratic number for a company to consider taking on a new investment.