Common stock Essay

A1a. During the 12% stick virtuallys review the earnings per shargon third estate filiation out corresponded .103. The total was not enough to emergence the sh atomic number 18holders sound reflection. It was observed that the interest on the bonds would put them at $72,000. The interest on bonds was very high and could have contributed to the overthrow total figure. The park stock shares outstanding were at $975,000 which was a very low number. Compared to all the totals the 12% weft had the lowest shares issued. During the 20% bonds review they totaled the earnings per public stock share at .197. This stock pickax was the piece highest to the elect 50% stock option. It looks like the 20% bond option was lower due to using $120,000 in bonds and $480,000 in common stock. The 40% bond option had earnings per common stock share of .181. The ending total wasnt too bad but it wasnt enough to maximize the shareholders return. The company acquiring $240,00 in bonds and $360,0 0 in common stock contend a role why the figures went good enough to plus shareholders return. The 60% bond option had earnings per common stock share at .160.The $43,200 interest on bonds could have affected the earnings total. The income before follow to be and the tax income was a contributing factor to lower figures and results in the light up income category. A2. tilt Bikes need to analyze their smashing budgeting. Businesses should acquire investments that are sledding to bring in more revenue but they have to spring sure for the long term the investment is worth taking on. The currency inflows and outflows have to be looked at to determine what is best for the company. The company needs to see potential during the groovy budget stage. In the story production line management decided that the most reliable data for a keen of the United States budgeting analysis is to estimate the number of product sales using the U.S. determine and cost data. It is anticipa ted that costs go forthing be consistent in the in the buff Canadian location.Net express entertain is capital budgeting utilize to examine the success with of a investment or project by using the make value of cash flowing in and the represent value of the cash flowing out. It is used to determine profitability. It is a prick for management to see if the investment allow bring value to their company. Projects and investments should only(prenominal) be get rid ofn on if the total number is positive or at 0. The company had a low moolah present value of -26,740 and the moderate net present value of 2,243. The sales forecasting indicates a range of outcomes as indicated by a low forecast and a moderate forecast of results. The recommendation would be for opposition Bikes to not take on the Canadian investment. Based of the low and moderate numbers if they are split in half they would still be in the negative. It is suggested if the net present value is not a positive num ber a company should not take on the investment or project. sexual rate of return is the rate of growth projected for the investment or project.The story line advises contest Bikes, Inc. requires a 10% return on capital (hurdle rate) to pursue a capital investment. The internal rate of return for the low demand was 8.7% and the moderate demand cash flow was 10.1%. The higher(prenominal) rate of IRR the more likely 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. workings capital consists of present-day(prenominal) assets minus the flow liabilities, it is the m singley left over to bear for the day-to day activities to run a company. It is an indicator of how many short assets they have to be able to carry off their short-term debt. If the working capital ratio is less than 1 the company has a negative working capital. A company should eternally want to be in above 1 for posi tive results. The current assets drop be monitored daily or weekly to pass on a close eye on the incoming cash flow to the account.Obtaining working(a) Capital rivalry Bikes needs to obtain working capital quickly. The plot line suggests the cost to build the manufacturing readiness is expected to be $400,000. (All figures are in US$) Working capital of $200,000 will to a fault be necessary to support the operation. These two items have been considered as the total investment in the capital structure analysis. They need to come up with $200,000 for the expansion operation. contest Bikes feces get a line of credit from a stick to obtain working capital quickly. They will need to negotiate the terms and amount of time they will be doing with the bank for the apply.Once they aim the payments in their accounts receivables they then need to turn around and the pay the lend down. They can consider getting a business cash cash advance to obtain working capital. Business advance loans have a faster turn around time to receive the funds than a tralatitious bank loan. Most of the time the payment 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 days to receive payment, they need to decrease their days to right around 30 for collecting payment. They may need to consider discounting to the customers that are nonrecreational the m whizzy on time. The company needs to consider charging penalty fees for accounts they are outstanding. Managing account payables is another way to manage working capital. They need to keep a good relationship with their suppliers. When picking suppliers payment and the terms of the write out need to be the number one priority. Paying the supplier on time and keeping an open line of communication is the key to managing the accounts payable.They also need to re-evaluate how inventory is handled to properly manage their working capital. The inventory and buy has to be reviewed to bring in sure they are bringing in the crystalize and defect free products and keeping track of them. They need to develop the first off in first out method. They need to use the inventory long-lasting that they had the longest. They need a security plan in place to make sure the inventory is accounted for and locked in a safe facility.Lease vs. spoilCompetition Bikes has to make the decision whether they will lease a facility or whether they will buy in the Canadian expansion. For the leasing option the storyline advises 5 social class lease financing has been projected at 6%. No down payment is required with this option but the $200,000 working capital must still be internally funded. The leasing company would buy the structure outright and then accept five $90,000 lease payments over 5 years. A $50,000 buyout option would be included so Competition Bikes, Inc. could require to keep the location at the end of the five-year lease. To the lease the facility it will cost $283,752 by and by(prenominal) 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 stated the depreciation on the advanced asset will be based on a 10-year life. The edifice is expected to have $200,000 value at the end of the ten years. The afterward 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% goal is to preserve working capital. The leasing option is going to be less money and a disclose option for having a positive working capital.Merger vs. AcquisitionA coalition is when two companies mutually agree to become one company. They will them form one completely new company. If the merger they can offer a best(p) robust product line. With the merger they also can bring in and appeal to a wider customer base than beingness just one company. The potential for increased revenue is an advantage to unite two companies. A merger can bring a better research and development element to the new company. The cons of a company merger can be increased prices. If there is less competition in the market and one company having monopoly power they can make consumers pay higher prices. A company merger can also turn tail 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 acquisition is when one company buys another company by taking over most or all of it. During an acquisition one company will consume total control over the other. The boot company will acquire or absorb a second company to further 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 chall enges. A company can run into difficulties integrating two different companies and having them on the same page. getting 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. Based 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 pr esent value needs to be a positive number for a company to consider taking on a new investment.