Explore BrainMass
Share

IPO price, derivatives, liquidation value

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Answer the attached questions with short answers.

1. Should all companies use leverage to boost their valuation? Why or why not?

2. What message does a company send to the financial markets when it changes its capital structure?

3. When should companies consider advertising and a change of company name and logo in an attempt to boost corporate valuation?

4. Traditionally, IPOs are priced at levels below what it is believed the market can bear. Do you think this makes sense, or are companies losing out on potential gains?

5. How might the choice of financing strategy affect the performance of a company?

6. Under what circumstances should companies use derivatives to hedge financial risk?

7. When should you use liquidation values as opposed to going-concern terminal values for a company?

8. How might the strength or weakness of a foreign economy affect the valuation of business operations of a U.S. firm in that foreign country?

© BrainMass Inc. brainmass.com October 16, 2018, 9:36 pm ad1c9bdddf
https://brainmass.com/business/initial-public-offering/ipo-price-derivatives-liquidation-value-262037

Solution Preview

1. Should all companies use leverage to boost their valuation? Why or why not?
All companies should not use financial leverage. The reason is that if it increases shareholder's return on investment it should be used. In addition, if it gets the company substantial savings by way of taxes it should be preferred. Remember interest is tax deductible, whereas dividends are not. On the other hand if the company faces a risk of not being able to pay back its debts it should not go in for leverage. Also there is a danger that the company may be liquidated because of bankruptcy if a company is highly leveraged.

2. What message does a company send to the financial markets when it changes its capital structure?
The message a company sends to the financial markets when it changes its capital structure is that there is a change in the company's strategy. This is the general message. However, in particular there are several different messages. For instance, if a company begins favoring debt, the message may be that the company may have difficulty in raising share capital. In general the change is that a company which had most of its capital equity begins borrowing heavily from banks. It sends the message that there will be a long term negative impact on the cash flow of the company. Further, the flexibility of the company is compromised because it limits the flexibility of the company from making value-creating investments like capital expenditure, acquisitions and R&D.

3. When should companies consider advertising and a change of company name and logo in an attempt to boost corporate ...

Solution Summary

IPO price, derivatives, liquidation value are discussed in great detail in this solution.

$2.19
Similar Posting

The company of this research is Nike

The Company on this research is NIKE.....Everything on this research need to be from Nike the shoe company...

Write a very brief introduction indicating why you chose this particular company. Provide a brief summary of the company's history and the type of business and industry it is in. Analyze the company's operations and forecast for the next 3 to 5

a. fiscal years' sales and earnings AND STOCK PRICE.

Obtain each of the company's various reports. You can call the company's treasurer or investor relations office and ask for the reports. Read each report and briefly analyze the company on the basis of these reports. Available reports may include the Annual Report, 10K, Quarterly Report (10Q), Prospectus, Proxy Statement for Annual Meeting, Press Releases and Financial Analysts' Reports.

4. Obtain current reports in Value Line (basic & expanded volumes), Moody's S&P's and from a securities brokerage firm. Read and analyze each report. What is YOUR analysis of the company based on reading the reports? Does your opinion of the company differ from the reports? What accounts for the difference? Your conclusions based on your analysis is most important.

5. Keep daily or weekly stock prices on your company for nine weeks. Also keep track of a stock index--Dow Jones Index, NYSE Index or S&P 500 Index for the same period. At the end of the nine weeks, calculate the rate of return on the stock and on the Index over the period.

6. BE BRIEF, CONCISE, TO THE POINT. In order to make a forecast of next year's sales, earnings and stock price you will have to answer the following questions or consider the following issues AT A MINIMUM:

7. What is the company's RISK? What does the beta tell you

a. about the riskiness of the stock? How does the company's

b. beta compare to the beta of other companies in the industry?

c. Value Line?

8. What type of stocks, bonds, options and warrants does the

a. company have? Give specifics--class, date, maturity, coupon

b. rate, outstanding volume, authorized, etc. What are the

c. ratings of the bonds?

9. What kind of capital structure does the company have (Debt

a. to Equity %)? Can you tell whether it is typical of the

b. industry or different? Has the company ever been in a

c. Why, and what was the outcome?

d. What was the capital structure before and after Chapter 11?

10. Various ratios relate the internal performance of the firm

a. to the external judgment of the market place in terms of

i. value.

b. What is the book value and market value of the company?

c. What is the price-to-book ratio of the company?

i. What is the price-to-market ratio of the market?

ii. Check Value Line publication in library?

d. Do a trend analysis (five years) of at least five

1. important ratios.

ii. Analyze the company's liquidity and profitability position.

iii. Do a trend analysis (five years) of the sales, earnings & price of the company.

e. From the above, compare the most recent year's ratios

i. for your company to the ratios for the industry.

ii. How does the company compare? Is this good or bad?

11. Does the company pay a dividend?

a. If so, what has been the growth rate?

b. Does the company have a dividend reinvestment plan?

c. What is the company's past history of dividends?

d. Is there a trend?

12. Has the company ever had stock splits or stock dividends?

a. If so, what was the probable reason?

b. Check the Value Line graph.

13. Does the company have treasury stock?

a. How Much?

b. Check the balance sheet.

14. Has the company ever been involved in merger activity?

i. What transpired?

15. What are the amounts of the top salaries for the executive officers?

a. Is there a relationship between the top executive's salary, the number of years he has been with the firm and the number of shares of stock that he own?

b. Do you think the number of shares he owns seem high or low? Discuss.

c. What percentage of shares are owned by insiders?

d. Check Value Line.

16. Find two current articles on the company in Forbes, Fortune,

a. Business Week, The Wall Street Journal, Barrons or The Economist. Briefly

b. summarize the two articles in your report.

17. Obtain a copy of a research report on your company. It is generally available from one of the retail security brokerage firms. You may have to call the brokerage firm's research department.

View Full Posting Details