What is the advantages and disadvantages for price ratio model?
Answers: The advantages of price ratio models are that they are very easy to use and the information is publicly available.
The disadvantages is that there is very little information content...what do you know that someone else doesn't? Also, it does not account for risk. A P/E of 17 doesn't tell you much unless you compare it to others in the same industry or against the company's own history. Also, one must consider whether earnings are based on last year's earnings (little informational value) or next years (subject to interpretation).
Good Luck!
What does calculating the weighted average cost of funds update you almost Foust Company’s financial strategy
including the level of risk involved contained by the business? How could the company use WACC calculations within determining future investment?The following tabulation give earnings per share information for the Foust Company during the
preceding 10 years. The firm’s common stock, 7.8 million shares outstanding, is very soon (1/1/03)
selling for $65 per share, and the expected dividend at the end of the current year (2003) is
55 percent of the 2002 EPS. Because investors expect former trends to continue, g may be base
on the earnings growth rate. (Note that 9 years of growth are reflect in the notes.)
YEAR EPS YEAR EPS
1993 $3.90 1998 $5.73
1994 4.21 1999 6.19
1995 4.55 2000 6.68
1996 4.91 2001 7.22
1997 5.31 2002 7.80
The current interest rate on new debt is 9 percent. The firm’s marginal due rate is 40 percent.
Its capital structure, considered to be optimal, is as follows:
Debt $104,000,000
Common equity 156,000,000
Total liability and equity $260,000,000
Answers: Wow. This is a tough one.
First, the Weighted Average Cost of Capital (WACC) is a mixture of what it costs the firm to issue debt (the interest is tax deductable) and what it costs to issue contemporary stock. Then, you weight the two base on the capital structure.
The cost of debt is confident...It's 9% times (1-tax rate) = .09(.60) = 5.4%.
The cost of equity has to be back into by using the current price and the implied growth rate. You can use the formula Price = next year's dividend / (equity cost - growth rate)
I calculated the profits growth rate over the past 9 years at 8%. So, subsequent year's dividend is .55*(7.80)*(1.08) = $4.633
If $65 = 4.633/(k-.08), K = .1513 or 15.13%
The weight of debt and equity is base on the capital structure. So debt = 104/260 = 40% and equity = 60%.
The WACC = .4 (5.4%) + .6 (15.13%) = 11.238%
The WACC can be used as a benchmark, or hurdle rate, to determine which projects surrounded by capital budgeting should be permitted. It will cost the company an average of 11.24% to fund new projects, so it will obligation to generate at least an 11% return to break-even. Projects near expected returns below 11% should be rejected. Because the WACC incorporates both the cost of debt and teh cost of equity, it accounts for the relative risk of the company in jargon of evaluating new projects.
I hope that help!
Trading online?
I'm thinking about investing contained by some stock online through a company but I'm unsure which. I'm a college student and I only own $1,000 in the wall right now, and most of it will dance for rent for my apt. If anyone can offer some suggestion to me on if I should or shouldn't (I'm looking to not make speedy cash, but to hold on to a stock in a company for a while and consent to it grow) and what company or business I should invest in to know how to have money for the adjectives.Answers: In this market, hold on to your cash --- within cash. Us e a money souk fund, or if you don't need access to it, a 3-month compact disc.
Read up in investing, pay cheque attention to what goes on, practice near "funny money". Even with this, investing can be a moment or two trepadasious (sp?).
And keep putting somewhat away each paycheck. Build up an "emergency fund" ( roughly speaking 3 to 6 months of living expenses) before taking this leap into stocks.
Hope this help.
Well my friend, I honestly think that you should not invest especially when you are not too sure what you are doing.
The best investment that you should put your money into is yourself and the small fragment inside your head which is your brain.
Get learned first, then you will minimise the risk of your investment and at like time you will be more confidence in making money from your investment.
Great... You're short on brass & your asking strangers how to invest it. You will never know their qualifications or motives. but you might put your money where on earth they suggest.
Good luck with that!
Keep a "stock" for awhile. Generally long occupancy investing is 5 or more years. 10, by many is the minimum.
You enjoy very little money. And most of it will be needed soon for expenses.
What would you make clear to you?
My suggestion;
Take $100 and over time buy and read books on investing. Learn it so you'll avoid the typical (and costly) mistakes other newbe's make!
You said you are "looking to receive quick cash", but are looking to "keep hold of a stock for a while to let it grow."
I deduce you have conflicting investment criteria. Usually stocks that variety you "quick cash" are not the stocks that you permit grow.
I agree with Common Sense and suggest you invest $100 within books and education on the bazaar before buying any stock.
Read a couple of books on investing.the culture will help you for a lifetime.....