Case #04
Case #04
.hy do yo# think =arry >tone wants to estimate the "irm<s h#rdle rateD !s it @#sti"iable to #se the "irm<s wei hted a$era e cost o" capital as the di$isional cost o" capitalD 2lease e9plain. ,ow sho#ld >tephanie o abo#t "i #rin o#t the cost o" debtD Calc#late the "irm<s cost o" debt. Comment on >tephanie<s ass#mptions as stated in the case. ,ow realistic are theyD .hy is there a cost associated with a "irm<s retained earnin sD ,ow can >tephanie estimate the "irm<s cost o" retained earnin sD >ho#ld it be ad@#sted "or ta9esD 2lease, e9plain. Calc#late the "irm<s a$era e cost o" retained earnin s. Can "lotation costs be i nored in the analysisD I9plain. ,ow sho#ld >tephanie calc#late the "irm<s h#rdle rateD Calc#late it and e9plain the $ario#s steps. Can =arry ass#me that the h#rdle rate calc#lated by >tephanie wo#ld remain constantD 2lease e9plain. Table T!e Oceanic Corporation Balance S!eet "#000s$
Cash 7555 Acco#nts Recei$ables 15555 !n$entory :5555 Total Current Assets 35000 =and J *#ildin s (net) 46555 2lant and I&#ipment (net) Total Fixed Assets 88000 Total Assets %3000
Acco#nts 2ayable Accr#als %otes 2ayable 15555 Total Current Liabilities 23000 =on +term debt 45555 Common stock (5 million shares outstanding) 47555 Retained Iarnin s Total liabilities an& e'uit(
3555 7555
Case #04
Table % T!e Oceanic Corporation Sales) *arnin+s) an& ,i-i&en& .istor( "#000s$ Sales *arnin+s per s!are 4:4,555,555 45.43 :3,355,555 5.73 6G,555,555 5.H: 47,555,555 5.3G 71,H75,555 5.9G G:,155,555 1.5G H4,7:5,555 1.:5
,i-i&en&s per s!are 45.15 5.1: 5.17 5.13 5.:5 5.:: 5.:7