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Corporate Finance Problems

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Please try to complete within an hour, thanks! Pretty easy, just need to check.

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Solution Summary

This solution explains concisely 15 common definitions in finance, including closing price of a stock, price per earnings (P/E), value of stock, growth stocks vs. value stocks, payback period, net present value (NPV), internal rate of return (IRR), profitability index (PI), and net working capital. The solution includes simple examples and calculations.

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Dear Student:

Q1 Closing price the previous day = 55.14 - 1.04 = $54.10
Correct answer is B

Q2 Value of stock = the expected future dividends and the discount rate
Correct answer is B

Q3 P/E = 10 and P = $50; thus earnings per share (EPS) = 50/10 = $5.00
Correct answer is D

Q4 This is a tricky question. Usually we assume that growth stocks are small, quickly growing companies, which do not pay dividends, and which often have higher P/E ratios. Let us visit Finance Yahoo to find out information on these three companies at http://finance.yahoo.com

Unilever (UL) and Cummins (CMI) are established companies that have been paying dividends for years. P/E ratios for UL = 20.96, CMI =11.08 and Starbucks (SBUX) = 29.81. Starbucks started to pay dividends in 2010, so that would be the most likely candidate for a ...

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