Required 1 calculate vistas cost of equity using the

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REQUIRED: 1. Calculate Vista’s cost of equity using the dividend growth model. Show your calculations. 2. Calculate Vista’s cost of equity using the Capital Asset Pricing Model. Show your calculations. 3. Compare the dividend growth model to the Capital Asset Pricing Model, by identifying at least three characteristics of each. 4. Identify and discuss three factors that impact a firm’s cost of equity.
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370 Question 2.26 – Atlas Express Atlas Express, established thirty years ago, provides mailing and shipping services worldwide. The company has 50 office locations in the U.S. A recent economic recession and its lingering effects, accompanied by the acceptance and growth of major new technological platforms, has had a significant negative impact on the company’s revenue as mail and shipping volume has fallen precipitously. Atlas anticipates that volume will decrease for the foreseeable future. During the past year, the company purchased new equipment worth $41,800. Proceeds from sales of the old equipment were $11,500 with a net gain of $1,700. Below are the balance sheets as of December 31, 20X2 and as of December 31, 20X1, and the income statement for the year ended December 31, 20X2. Balance Sheets December 31, 20X2 December 31, 20X1 Cash and cash equivalents $ 81,800 $ 148,800 Receivables, net 87,900 104,100 Advances and prepayments 15,400 12,000 Total current assets 185,100 264,900 Buildings, equipment and land, net 2,001,400 2,076,400 Total assets $ 2,186,500 $ 2,341,300 Compensation and benefits 915,300 360,000 Trade payables and accrued expenses 420,100 438,800 Deferred revenue-prepaid postage 386,800 349,700 Short-term portion of debt 744,600 750,000 Total current liabilities 2,466,800 1,898,500 Long-term debt 2,260,100 2,336,800 Total equity (2,540,400) (1,894,000) Total liabilities and equity $ 2,186,500 $ 2,341,300 Income Statement Year ended December 31, 20X2 Operating revenue $ 3,390,400 Compensation and benefits 3,234,500 Transportation 502,500 Depreciation and amortization 107,000 Other 184,700 Total operating expenses 4,028,700 Loss from operations (638,300) Interest expense (8,100) Net loss $ (646,400)
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371 REQUIRED: 1. Use two financial ratios to analyze the liquidity of the company. Show your calculations and explain your analysis. 2. Recommend two ways to improve liquidity. 3. a. Define bankruptcy. b. Identify one advantage and one disadvantage of declaring bankruptcy. c. Do you recommend bankruptcy for Atlas? Explain your answer. Question 2.27 – Leather Manufacturer A company manufactures leather purses using a labor force for the process of hand cutting and sewing the leather. The company is considering changing the current manufacturing process by using a new machine capable of cutting the leather. Workers would then assemble the precut pieces into the finished product. The company anticipates selling 31,250 units at a selling price of $80 each. The machine is available to lease at a cost of $550,000 per year with a ten-year lease commitment. The lease is an operating lease. If the machine is not leased, the company will continue to utilize its current hand cutting process. The projected income statements for next year are shown below.
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