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21) Why may EVA be considered a better measure for rewarding managers than SVA? A) EVA can be fine-tuned to measure an individual’s performance. B) EVA is not as easily manipulated by managers as SVA. C) EVA values are more comparable from period-to-period than SVA. D) EVA does not include estimates of future performance. E) EVA focuses managers on current profits rather than long-term gains. 22) Five years ago, Pandura Chemicals was incorporated issuing three million common shares at $12 each. At the company’s inception, it also issued $10 million of 20-year bonds at a face value of $1000 and with a coupon rate of 8% and annual payments. Today, the company’s shares trade at $22 each and bonds for a company with the same risk rating are issued at 6%. Pandura’s retained earnings equal $7 million. Recalculating debt to reflect market values, what is Pandura’s Market Value Added (MVA)? A) $21.1 million B) $23.0 million C) $24.9 million D) $25.3 million E) $38.9 million 23) Harry Hermes Delivery Service’s has been restructured to stem losses. The company’s EVA for the year just ending was ($300,000). In its medium range plan Harry Hermes has projected EVA for the following three years to be ($150,000), $25,000, and $500,000, respectively. If the company’s weighted average cost of capital is 10%, what is the gain or loss in shareholder value over the period? A) ($36,408) B) ($40,055) C) $23,622 D) $75,000 E) $185,168 24) Business 1 has a total market value of $500 million and total capital invested of $350 million. Business 2 has a total market value of $850 million and total capital invested of $570 million. Business 3 has a total market value of $700 million and total capital invested of $420 million. Business 4 has a total market value of $680 and total capital invested of $460. Business 5 has a total market value of $500 million and total capital invested of $220. Use MVA and any other calculation necessary to find which business provides the highest wealth creation. A) Business 1 B) Business 2 C) Business 3 D) Business 4 E) Business 5 25) What is the total shareholder return (TSR) if Calico Clothing’s share price over the past year increased from $25.40 to $28.50 and the company paid out dividends of $1.65 per share? A) 18.7% B) 16.7% C) 5.7% D) -5.1% E) -5.7% 26) A large company has profiled its current customer database using over 150 characteristics including size, credit rating, frequency of purchase, value of purchases, speed of payment, etc. The resulting model predicts with significant accuracy the likelihood of new customers becoming loyal customers. The company has restructured its commission system to reward sales persons who sign up customers matching the computer profile. The bonus is based on the net present value of expected future purchases less a factor for estimated length of collection period. Which measure of shareholder wealth is this performance reward system most consistent with? A) Total Shareholder Return (TSR) B) Traditional accounting methods C) Market Value Analysis (MVA) D) Shareholder Value Analysis (SVA) E) Economic Value Added (EVA) 27) Which of the following demonstrates a growth strategy for the creation of shareholder wealth? A) Reducing salary expense of inside sales representatives by creating a self-service web site. B) Improving the operating cash cycle through Just-In-Time raw materials delivery from suppliers. C) Instituting recycling and recovery processes to reduce waste and cut costs. D) Replacing old equipment with newer equipment providing higher quality and yield. E) Creating a product development process that ensures new products make up a specified proportion of the total product line. 28) Jericho Paper Distributors has a stable share of a saturated regional market. If the company’s EVA is expected to continue at $7.2 million indefinitely, its capital invested is $3.1 million, and its cost of capital is 8%, what is the total business value? A) $144.2 million B) $93.1 million C) $41.5 million D) $10.3 million E) $9.8 million 29) Simithy Medical Disposal is a new and expanding entry in the bio-waste/bio-hazard industrial sector. As of year-end it had $50 million in invested capital of which $40 million is long-term debt. Simithy Medical’s 2 million shares trade for $45 each. The company has an EVA of $8.3 million and a cost of capital of capital of 12%. Assuming book value of debt equals market value, what is Simithy’s Future Growth Value (FGV)? A) $10.8 million B) $20.8 million C) $69.2 million D) $249.2 million E) $350.1 million 30) A company has a business value of $2,075,000, a weighted average cost of capital of 14%, and invested capital of $1,250,000. The company’s EVA for its most recent period is $47,200. What proportion of the company’s business value is contributed to by growth? A) 8.4% B) 9.7% C) 16.2% D) 20.1% E) 23.5%

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