Spring 2, 2013
(20 pts) 1. As a financial analyst, you have been asked to analyze certain aspects of working capital management for The Wendy’s Company (WEN); McDonald’s Corporation (MCD); and Chipotle Mexican Grill, Inc. (CMG). In your analysis you should consider the following:
Cash conversation cycle.
Liquidity.
Net working capital.
Short-term financing versus long-term financing.
Provide analysis for the computations.
(15 pts) 2. Explain what you believe is the dividend policy for The Wendy’s Company (WEN); McDonald’s Corporation (MCD); and Chipotle Mexican Grill, Inc. (CMG) In answering this question, discuss the concepts that were examined in class. The points earned depend on the depth of the discussion along with the supporting computations.
(10 pts) 3. You are considering a radical change to your life after winning $10,000,000 after taxes in the Florida State Lottery. You have decided to move to China and you are considering the purchase of a Chipotle Mexican Grill, Inc. franchise. Explain how you would decide whether or not you should open the franchise. Your discussion should be in the context of this course. No computations are necessary.
(7 pts) 4. Rho Corporation has 200,000 shares outstanding and plans to pay $1.50 in
dividends next year. Rho has a capital budget of $1,000,000 for next year and plans
to maintain its present debt ratio of 40 percent. If earnings are expected to be $4.50
per share, how much external equity must Rho raise?
(15 pts) 5. Sigma Corporation is considering whether to pursue an aggressive or conservative current asset policy, as well as an aggressive or conservative financing policy. The following information is available:
Annual sales are $800,000.
Fixed assets are $300,000.
The debt ratio is 50 percent.
EBIT is $80,000.
Tax rate is 40 percent.
With an aggressive policy, current assets will be 20 percent of sales; with a conservative policy, current assets will be 35 percent of…