Restructuring effects on EPS, leverage and WACC CFA Flashcards - Medical Study Cards
Master Restructuring effects on EPS, leverage and WACC with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.
Restructuring effects on EPS, leverage and WACC Flashcard Deck - 10 Cards
Flashcard 1: Restructuring
Answer: - **cost restructuring:** typically follow periods of underperformance & drive efficiency
- outsourcing: (+) lower costs, (-) juggle contracts
- **Balance sheet restructuring**
- sale & leaseback: (+) cash infusion (lease payments>depreciation)
- dividend recapitalization: increase leverage by increasing debt financed dividends or by repurchasing shares
- objective: replaceme equity with cheaper debt
- **Reorganization:** may be mandated during involvency
Flashcard 2: What is a dividend recap?
Answer: BS restructuring that increases leverage by using borrowed funds to repurchase company stock
Flashcard 3: How is the market conversion price affected by a reverse stock split?
Answer: doubles
Flashcard 4: How could a company counter declining growth rates?
Answer: - acquire faster-growing businesses
- divest segment with lowest growth
Flashcard 5: How is a conversion ratio affected by a stock split?
Answer: doubles
Flashcard 6: How is the conversion ratio affected by a reverse stock split?
Answer: reduces by half
Flashcard 7: Cannibalization rate =
Answer: \= new product sales that will replace existing product sales / total sales of existing product
Flashcard 8: If the deal is expected to fall through in merger arbitage....
Answer: short target company and long acquiring company
Flashcard 9: Divestment
Answer: selling off subsidiary business
- sale of a division: no more exposure
- spin-off: create new, separate entity
- intended to improve focus of mgmt & employees of new company & allows stock-based compensation schemes to be implemented
- divestment does not generate any proceeds for divesting company
Flashcard 10: Premium paid in a takeover transaction =
Answer: premium = (deal price up - pre-announcement price) / pre-announcement price
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