The capital structure that Cullopmtons plc will undertake would be a more equity based funding because if the company makes profit then the company will have an increase in dividend, however if he company encounter low profits then the dividend will decrease which means that shareholders will not receive their share of money, however if the company have high debtors then they will have to pay of their debtors first.
Cullomptons stock market indicators as at 31st December 2002 shows that the earnings per share have decreased from the previous year by 0.042p leaving it at a figure of 0.0292 and the previous year the earnings per share was the highest as it shows a figure of 0.0334 which shows that Cullomptons had made some profit which had increased their share price, however the year before that in 2000 the earnings per share was the lowest showing a figure of 0.0225. The company’s dividend cover for the year 2002 shows a figure of 2.5, which has decreased from the previous year, which was showing a figure of 2.8. In the beginning of the year the dividend cover was the lowest showing a figure of 2.1.
The company’s stock market indicators performance as at 31st December 2002 shows that shareholders have made a loss of 0.042p in as the company’s earnings per share have decreased. The company’s performance as at 31st December 2002 for the dividend cover ratio shows a low value which means that the business might have difficulty paying a dividend. This shows that the shareholders will not receive a dividend. This means that shareholders may withdraw from the company and invest in better companies that have a higher return in dividend.
The company’s price earnings ratio as at 31st December 2002 has increased from the previous year by 2.1 leaving a figure of 16.8. The previous year the price earning ratio was showing a figure of 17.7 the highest figure of the year. Cullompton’s dividend yield for the year 2002 had increased from the previous year by 0.2%, which shows a figure of 5.9%, which means that the share earnings had increased. In 2001 the dividend yield had the lowest share earning percentage figure showing a figure of 5.7%.
The performance of Cullomptons as at 31st December 2002 shows that it has not been doing well in the stock market area as the dividend yield ratio has deceased from 6.8% to 5.9%, which shows that the investors are gaining a low return on the earnings of their shares. The company’s performance for price earnings ratio as at 31st December 2002 shows that it has increased from 14.7 to 16.8, which is an increase of 2.1. This is good for the investors and the business as it expresses a great deal of optimism about the future of the business. Cullomptons performance as at 31st December 2002 is not in a satisfactory state and they will need a lot of improvement to for the business. What is the relationship between interest rates and inflation rates in each currency?
As per the fisher effect, we already know that the countries with higher inflation rates have higher interest rates. This is also verified from the graphical representation where we find that inflation governs the way economy experiences the interest rates. In case of Japanese Yen, Feb 2000 witnessed the highest inflation rate of 3.352% with the interest rate of 3.6025% in March 2000.
In case of USA dollar, Dec 99 witnessed the highest inflation rate of 4.2023% with the interest rate of 4.4934% in March 2000. However there were few exceptions which could be due to some other external factors. The underlying condition is of no government interference so there might be some disruptions of fluctuations on the part of the government which led to these exceptions.
3. How should BID analyze its effective borrowing costs over the period 1996-2005? As showed by the analysis there are a number of instruments that can gauge a better understanding of the costs and in our case we can make use of different parity conditions to decide whether to borrow in one currency for a considerable long duration or switch to different currencies.
For instance, we find that alone knowing the inflation rates and nominal rates helps us to know the real interest rates which in turn lead us to the spot and forward exchange risks. Therefore, BID could use the real interest rates to analyze its borrowing costs. BID continued to borrow from the USA therefore these interest rates would help analyze the same. Also the below table shows that BID could have borrowed from Japan in until mid 2001 but the treasurer assumed that the duration of debt would offset the higher interest rates.