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BUS 401 ENTIRE CLASS

It is always estimated using the present value of future dividends approach.

It is estimated by solving for the discount rate for a perpetuity.

It is generally lower than the cost of debt because equity holders are paid after taxes are paid.

4.) The weighted average cost of capital is:

the average return for the company's stock over the past several years.

the average cost, including commissions, for raising capital for the firm.

an average required return for each of the sources of capital used by the firm to finance its projects, weighted by the amount contributed by each source.

interest payments and dividends, divided by the price of bonds and stock, respectively.

5.) In the Capital Asset Pricing Model, the risk-free rate:

links the CAPM to current market conditions.

is the historic long-term average rate of government bonds.

can be approximated by using yields on high-rated corporate bonds.

is always the current yield on 30-year US government Treasury bonds.

6.) In the Capital Asset Pricing Model, the market risk premium can be thought of as:

the return investors expect to earn for each unit of risk as measured by beta.

the risk premium that any asset must pay above the risk-free rate.

the expected return on the market portfolio (or a broad market index).

a measure of risk of an asset.

7.) A bond pays semiannual coupon payments of $30 each. It matures in 20 years and is selling for $1,200. What is the firm's cost of debt if the bond's par value is $1,000? (Don't forget this is a semiannual coupon.)

2.23%

4.48%

1.80%

3.60%

8.) Which of the following is beta is used for?

estimating a regression line

estimating a firm's total risk to be used in the WACC

estimating a firm's market risk and used with the CAPM

estimating the amount of leverage used by the firm

9.) The discount rate used in project evaluation should:

be based on the firm's overall risk.

be based on each project's risk.

be estimated using the WACC for all projects.

All of the above are correct.

10.) The financing mix reflected in the WACC should:

reflect the desired mix and not necessarily the mix being used to finance a specific project.

vary from project to project, depending on how they are financed.

always reflect the firm's current capital structure.

None of these answers is correct.

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BUS 401 Week 5 DQ 2 Applying Ratios to a Business

Applying Ratios to a Business

Review the following Evaluating Business Performance: Small Business Case Studies video:

The video focuses on profitability, liquidity, efficiency, and stability of business. Given what you have learned about ratio analysis, choose one of the businesses from the video (Rose Chong Costumes, Anro's Floor Maintenance, or John Osborne's Gym and Squash Center) and identify two ratios that would be helpful for the owner of the business to monitor. Be sure to explain what the ratio would tell the owner, and how it can be improved for the business.

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BUS 401 Week 5 Final Paper

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Evaluation of Corporate Performance

For the Final Paper, you will apply the concepts learned in class to an analysis of a company using data from its annual report. Using the concepts from this course, you will analyze the strengths and weaknesses of the company. You will then write a report either recommending or not recommending purchase of the company stock.

Research Tip: The Mergent database in the Ashford University Library contains company profiles and financial information for publicly traded companies and their competitors. To access this database, enter the Ashford University Library by clicking the "Library" link on the left navigation bar in your online course. Once you are in the Library, select "Find Articles and More" in the top menu panel. Next, select "Databases A-Z" and go to section M to access the Mergent database. For help with using Mergent, use "Mergent Online Quick Tips."

For help with reading an annual report access this handy guide from Money Chimp.

The completed report should include:

a. An introduction to the company, including background information.

b. A complete and thorough financial statement review.

c. Pro Forma financial statements (balance sheet and income statement) for the next fiscal year, assuming a 10% growth rate in sales and cost of goods sold (COGS) for the next year.

d. Complete ratio analysis for the last fiscal year using at least two ratios from each of the following categories:

Liquidity

Financial leverage

Asset management

Profitability

Market value

e. Calculate return on equity (ROE) using the DuPont system.

f. Calculate economic value added.

g. A synopsis of your findings, including your recommendations and rationale for whether or not to purchase stock from this company.

This report should be eight to ten pages long excluding title page and reference page(s). Use APA 6th edition formatting guidelines as outlined in the Ashford Writing Center. Support your findings and recommendations with evidence from at least five scholarly resources; such as the textbook, industry reports, and articles from the Ashford University Library.

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