Directions: Answer all the questions. Please submit your work in Word or PDF formats only. Also, please be sure to include your name at the top of the first page of your file. You can use any sources you wish, except for other people. Please be sure to document any source you use. The assignment is due at the next chat date.
Question #1
Using the Wal-Mart, Inc. financial statements provided on Blackboard, calculate and interpret the current liabilities ratios (including cash cycle) we discussed in class. Assume 12% of all sales are credit sales.
Question #2
Using the Wal-Mart, Inc. financial statements provided on Blackboard, calculate and interpret the long-term liabilities ratios we discussed in class.
Question #3
You are the controller of a firm whose CEO believes that debt should always be used to finance long-term expenditures because interest is tax deductible. List and describe other benefits to debt financing. Also, list and describe risks to using debt.
Question #4
a) Given the following information, calculate the firm’s WACC:
Tax rate: 30%
Debt rate: 6%
Preferred stock dividend rate: 10% of $100 par value
Risk-free rate of return: 2%
Market rate of return: 14%
Stock beta: 1.2
Debt value: $25,000,000
P/S value: $5,000,000
C/S value: $20,000,000
b) What would a firm use the WACC for?
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