2-8) In early 2009, General Electric (GE) had a book value of equity of $105 billion, 10.5 billion shares outstanding, and a market price of $10.80 per share. GE also had cash of $48 billion, and total debt of $524 billion. Three years later, in early 2012, GE had a book value of equity of $116 billion, 10.6 billion shares outstanding with a market price of $17 per share, cash of $84 billion, and total debt of $410 billion. Over this period, what was the change in GE’s
a. Market capitalization?
2009= 10.5 billion shares x $10.80/share = $113.4 billion.
2012= 10.6 billion shares x ...view middle of the document...
However, their operating margin falls from 5.57% to 4.50%. Suppose that they have no other income, interest expenses are unchanged, and taxes are the same percentage of pretax income as in 2012.
a. What is Global’s EBIT in 2013?
Revenues in 2012 = 1.15 × 186.7 = $214.705 million.
EBIT = 4.50% × 214.705 = $9.66 million.
b. What is Global’s net income in 2013?
Net Income = EBIT – Interest Expenses – Taxes = (9.66 – 7.7) × (1 – 26%) = $1.45 million
c. If Global’s P/E ratio and number of shares outstanding remains unchanged, what is Global’s share price in 2013?
Share price =(P/E Ratio in 2005) X (EPS in 2006) =25.2 X (1.45/3.6) = $10.15
2-24) Suppose your firm receives a $5 million order on the last day of the year. You fill the order with $2 million worth of inventory. The customer picks up the entire order the same day and pays $1 million upfront in cash; you also issue a bill for the customer to pay the remaining balance of $4 million in 30 days. Suppose your firm’s tax rate is 0% (i.e., ignore taxes). Determine the consequences of this transaction for each of the following:
a. Revenues, increase by $5 million
b. Earnings, increase by $4 million
c. Receivables, increase by 4 million
d. Inventory, decrease by $2million
e. Cash, increase by $3 million (earnings) – $4 million (receivables) + $2 million (inventory) = $1 million (cash).