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The Discounted Cash Flows Model

Capital Budgeting Investment Decisions

A firm's cost of capital is 12 percent. The firm has three investments to choose among; the cash inflows of each are as follows: Cash Inflows A B C YEAR 1 395 0 1241 YEAR 2 395 0 0 YEAR 3

Gordon Growth Model and One-Period Valuation Model

Based upon the Gordon Growth Model, calculate the anticipated market price of a stock that is paying dividends at a constant growth rate of 6.25%, with a recent dividend of $1.00, and a required return rate of 15%. (Show all work/calculations/formulas.) You would like to consider purchasing a stock that is selling for $90 an

Stock Price and Dividend Problem: Texas Corporation

Texas Corporation stock pays a dividend on every July 15. In 2008: the dividend is $3.00, in 2009 $3.25, in 2010 $3.50, and in 2011 and all the subsequent years it will be $4.00. The shareholders of Texas require a return of 13% on their investment. Find the price of this stock on July 16, 2008, just after it has paid its divide

Annuities and Cash Flows

To find the present value of an uneven series of cash flows, you might find the PVs of the individual cash flows and then sum them. Annuity procedures can never be of use, even if some of the cash flows constitute an annuity (for example, $100 cash for Years 3, 4, 5, and 6), because the entire series is not an annuity. Is thi

Determining Stock Value

Better Life Nursing Home, Inc. has maintained a dividend payment of $4 per share for many years. The same dollar dividend is expected to be paid in future years. If investors require a 12 percent rate of return on investments of similar risk, determine the value of the company's stock.

What is the bond's yield to maturity?

Tidewater Home Health Care, Inc. has a bond issue outstanding with eight years remaining to maturity, a coupon rate of 10 percent with interest paid annually, and a par value of $1,000. The current market price of the bond is $1,251.22. a. What is the bond's yield to maturity? b. Now, assume that the bond has semiann

Fundamental Analysis for Microsoft

I want to know the current fair value for Microsoft compared to the market using 3 models I believe are the best: Discounted Cash Flow; Dividend Discount Model; Residual Income Model. It should be explained properly on how you got your inputs or calculated them. Compare the fair value to the market and conclude with an executi

Cost of Capital and Project Risk

Cascade Water Company (CWC) currently has 30,000,000 shares of common stock out- standing that trade at a price of $42 per share. CWC also has 500,000 bonds outstanding that currently trade at $923.38 each. CWC has no preferred stock outstanding and has an equity beta of 2.639. The risk-free rate is 3.5%, and the market is expec

Reliable estimation of appropriate discount rate, cash flows

I would agree that despite the advantages offered by NPV over alternative investment appraisal methods, there appear to be some practical issues such as the reliable estimation of an appropriate discount rate, as well as amount and timing of cash flows. The estimation of appropriate interest rate has to consider various risk

Strategies to Accelerate Cash

1. Electronic Payments 2. Offer Discounts 3. No Credit Can you describe these strategies and also the potential costs involved with each action?

Business Valuation

When we consider a business venture, how similar or different are the principles of evaluation are from that old valuation rule? What are the specific difficulties in assessing the value of a new business venture?

Angiletta Corporation: PV of future cash flows, Book depreciation, MACRS

Angiletta Corporation is considering a new project requiring a $30,000 investment in test equipment with no salvage value. The project would produce $12,000 of pretax income before depreciation at the end of each of the next six years. The company's income tax rate is 40%. In compiling its tax return and computing its income tax

Madison Bakery is considering the installation of a new oven

Madison Bakery is considering the installation of a new oven. Made in Milan, the oven would enable Madison to produce Old World breads which could be sold at premium prices. Costs are estimated as follows: Milano Oven...$1,150,000 Building Improvements...$650,000 Additions to Working Capital...$100,000 Madison Bake

Finance Questions

1. Determine the yield to maturity (to the nearest tenth of 1 percent) of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521. 2. A WPI 10s 08 bond closed at 89. What is the current yield on this bond? 3. The earnings and dividends of MicroSun Computer Co. are expected to grow at an annual rate

Determination of the Basis Point

Determination of the basis point spread of two securities with different maturities discount and premium based on their yields to maturity. The spread between TEX corporation's note with a coupon of 6.5%, seven-year remaining term, and selling for 101-3/8 and ACME corporation's debenture with a coupon of 9.5%, 18-year remain

Quantitative Foundation of Financial Management

1. Bond. What is the value of a $1,000 par value bond with annual payments of an a. 11% coupon with a maturity of 20 years and a 15% required return? b. 12% coupon with a maturity of 10 years and a 7% required return? c. 8% semiannual coupon with a maturity of 10 years and a 11% required return? d. 8% semiannual coupon with

Fair value of stock

A certain stock has the following stream of expected dividends: t : 1 - 2 3 4 5 6 - 7 ---------------------------------------------------- CFt : $1.00 $1.10 $1.30 $1.60 $2.00 What is the fair value of this stock if the required return is 15% and the stock will be sold aft

Foundations of Finance - DDM, Growth rate

1. Stock. What is the value of a stock with a a. $2 dividend just paid and an 8% required return with 0% growth? b. $3 dividend just paid and a 9% required return with 1% growth? c. $4 dividend to be paid and a 10% required return with 2% growth? d. $5 dividend to be paid and a 11% required return with 3% growth? 2. Sto

Replacement of an asset

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $576,000; the new one will cost $1,168,000. The new machine will be depreciated straight-line to zero over its 5-year life. It will probably be worth about $216,000 after five years. The old computer is being depreciated at a rate of $

Finding out Calculations of NPV, IRR and Contribution Margin

Sac need to manufacure 100,000.00 per year a life of 5 years and no salvage value. The straight line method will be used and there will be depreciation, the average cost is $20.00/ the expected cost of $8 to manufacture the new equipment. The initial investment is 3,000,000.00 to purchase Tax rate 34% Payback and IRR and

Cash Flows - Present and Future Values

1. How would you use the present and future value techniques in preparing a financial plan for retirement? How would required rates of return affect your decision? Explain your reasoning. 2. What is a loan amortization schedule? What type of loan and for how many years would you try to obtain one, if you were buying a house

Dividend Growth, CAPM or APT

I need help with writing a report explaining the challenge of estimating or coming with a good "feel" for the "cost of equity capital" or the rate of return that you feel your company investors require as the minimum rate of return that they expect of require my company (General Mills) to earn on their investment in the shares o

Land's End Hotel, Metro Printers: Managerial Accounting

1. You have just been hired as the controller of Land's End Hotel. The hotel prepares monthly responsibility income statements in which all fixed costs are allocated among the various profit centers in the hotel, based on the relative amounts of revenue generated by each profit center. Robert Chamberlain, manager of the hotel d

Discuss overall financial condition of Trinity

The board of directors of a hospital is working on a five-year strategic plan for the facility. One of the strategic goals is to build a new $1 million cancer research wing in five years. The group is concerned that current economic conditions might reduce revenues over the next five years and they are uncertain about the fate o

Financial Outcomes of General Motors

Discuss the increase in sales for General Motors. This is to be done using the financial reports from 2010. I have included the financial reports available from GM for the years 2008, 2009, and 2010. Must include calculations and/or charts. Compare and contrast three potential financial outcomes your Learning Team envi

Accounting_integrated financial statement

Merchandise with a list price of $7,500 and a cost of $7,000 is sold on account, terms 1/10, n/30. Prior to payment, merchandise with a list price of $1,000 and a cost of $800 is returned. The correct amount is paid within the discount period. Record the following transactions, using the integrated financial statement framewo

annual cost of financing

Please show steps and use your own words. Thank you! Assume that Seminole Inc. considers issuing a Singapore dollar-denominated bond at its present coupon rate of 7 percent, even though it has no incoming Singapore dollar cash flows to cover the bond payments. It is attracted to the low financing rate, since U.S.-dollar bonds

Using the Gordon Model to Conduct a Stock Valuation

The question is below. Gordon Model is: PO= Do (1+g) =d1 ri-g ri-g Here is the question: Your local stockbroker is recommending that you purchase a stock with a current market price of $57. This stock paid dividends last year of $4.00 and forecasts a future growth rate in dividends and earnings of 10%. Your requi