Corporate Finance Application

Option #1: Corporate
Finance Application
Part A: Ratio Analysis (Week 3
Milestone)
Attached are the financial
statements for Smith Company, Inc. Use the financial statements to calculate
the attached ratios. Write a couple sentences interpreting the ratio.
·
Calculate and interpret the following debt ratios: debt ratio,
debt-equity ratio, and times interest earned.
·
Calculate and interpret the following profitability ratios:
operating profit margin, net profit margin, return on assets, and return on
equity.
Part B: Require Return for
Capital Funding (Week 5 Milestone)
Suppose that Smith Company is
considering a new project. They are trying to determine the required rate of
return for their debt and equity holders. See the information below:
·
A 7.5% percent annual coupon bond with 20 years to maturity,
selling for 104 percent of par. The bonds make semiannual payments. What is the
before tax cost of debt? If the tax rate is 40%, what is the after-tax cost of
debt?
·
The firm’s beta is 1.2. The risk-free rate is 4.0% and the
expected market return is 9%. What is the cost of equity using CAPM?
Part C: WACC and Capital
Budgeting
·
Calculate the firm’s WACC (using 2018 numbers). (You will need
to collect information on the long-term debt and common stock equity from the
Balance Sheet. The firm has no preferred stock).
·
Use the WACC to calculate NPV and evaluate IRR for proposed
capital budgeting projects. Assume the projects are mutually exclusive and the
firm has the money available to fund the project.
Part D: Analysis
·
You will must offer suggests to a senior financial manager and
CFO on the proposed projects. Be sure to include a discussion of external
funding and where it should come from if necessary and which project the firm
should undertake. Prepare a presentation, a minimum of one slide for each part,
summarizing your results. You should submit either an Excel or Word document
showing your work for each part.
Content: Demonstrates strong
or adequate knowledge of the selected topic; Includes a SWOT analysis and
explanation of results, and correctly represents knowledge from the required 3
peer-reviewed sources to support conclusions.
Requirements: The portfolio
includes all of the required components as specified in the assignment; length
of paper (9-12 pages) or number of slides (18-21 slides and speaker’s
notes); review and critique of three journal articles in Section I.
Reference requirements: Cites
and integrates at least 9 credible sources.

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