1. Michaely Inc. is an all-equity firm with 200,000 shares outstanding. It has $2,000,000 of EBIT, which is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per shares (DPS). Its tax rate is 40%. The company is considering issuing $5,000,000 o
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1.________ is hired by a firm to find prospective buyers for its new stock or bond issue. 1. An investment banker 2. A securities analyst 3. A trust officer 4. A commercial loan officer 2. The ________ is utilized to value preferred stock. 1. variable growth model 2. Gordon model 3. constant growth model 4. zero
Answer true or false to each question with one or two sentences of explanation for each. 1. The greater the uncertainty of the future, the greater the need for alternative scenarios in projecting future cash flows. 2. The reliability of continuing value estimates is greater than of explicit forecast estimates. 3. Compet
Please answer questions #2 through #7 and 11-12 at the end of the case. Please use the attached excel spreadsheet to support the analysis. Please show all of your supporting works in excel.
1.Consider the following returns and yields: U.S. T-bill = 8%, 5-year U.S. T-note = 7%, IBM common stock = 15%, IBM AAA Corporate Bond = 12% and 10-year U.S. T-bond = 6%. Based on this information, the shape of the yield curve is 1. normal. 2. downward sloping. 3. upward sloping. 4. flat. 2.If a bond pays
2. Government economists have forecasted one-year T-bill rates for the following five years, as follows: Year 1-year rate (%) 1 4.25 2 5.15 3 5.50 4 6.25 5 7.10 You have a liquidity premium of 0.25% for the next two years and 0.50% thereafter. Would you be willing to purchase a four year T-bond at a 5.75% inter
8. Present value of an investment in equipment. (Tables needed.) Find the present value of an investment in equipment if it is expected to provide annual savings of $10,000 for 10 years and to have a resale value of $25,000 at the end of that period. Assume an interest rate of 9% and that savings are realized at year end.
Which of the three models (dividend growth, CAPM, or APT) is the best one for estimating the required rate of return (or discount rate) of Safeway? In your paper include discussion of the following issues: 1. Ease of use of these three models 2. Accuracy of each of these three models 3. How realistic the assumptions of e
There are many methods that are used by analysts and investors to value stock. A) Choose one of the methods and briefly describe this method. B) Give your opinion of why that method is useful in evaluating the stock of your choice (Example: use P/E ratio to evaluate Starbucks stock). Only one example is required.
Super Growth Corp. has decided to increase its dividend to $5 per share beginning next year. The firm's growth rate is expected to be 12.5% for the foreseeable future. Investors require a rate of return on the firm's stock of 18%. Utilize the Gordon Model to calculate the expected price of the firm's stock. a. $64 b. $75 c
You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds were originally sold, they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the yield to maturity on the bonds?
Select one current event. Then, select three separate concepts / tools to analyze the current events in such a way that each concept or analysis will allow a financial decision maker to make an informed decision. Concepts can range from risk and return, capital structure considerations, ratio analysis, financial statement, val
Two years ago, Laser Industries issued callable eighteen-year, 9% coupon bonds at par value of $1,000 per bond with annual coupon payments. The bonds have just completed their second coupon payment. The bonds can be called at 104 five years from the date of issue or anytime thereafter on a coupon payment date. It has a current p
Pick a company that pays dividends, then calculate the expected growth rate of your company using the CAPM. Once this task is complete, calculate the expected growth rate using the Constant Growth (or Gordon Growth) Model. You may need additional information to complete this exercise. You can find a stock's beta and grow
Answer the attached questions with at least five sentences each, >>>thoroughly and in your own words<<< 1. Identify two key drivers to cash flow. How do these drivers impact corporate value? 2. Define market efficiency. 3. What are some of the ambiguities encountered in accounting on an accrual basis? 4. How
Classification of Derivatives for Accounting I. Speculative II. Fair value hedge III. Cash flow hedge IV. Foreign currency fair value hedge V. Foreign currency cash flow hedge VI. Foreign currency hedge of net investment in foreign operation VII Not a derivative Based on the above, what category
1. What are some problems associated with using the discounted cash flow method of valuation? 2. Beta measures risk. What are some other types of risk faced by investors?
If BEA Enterprise in ready to launch a new product. Depending upon the success of this product, BEA will have a value of either $100 million, $150 million, or $191 million, with each outcome being equally likely. The cash flows are unrelated to the state of the economy (i.e. risk from the project is diversifiable) so that the
13. Consider the following tax rates for 2008: Ordinary Income Rate: 35% Capital Gains Rate: 15% Dividend Rate: 15% The effective dividend tax rate for a one-year individual investor in 2008 is closest to: [Hint: T*d = [(Td - Tg) / (1 - Tg)] 20% 15% 35% 0% 14. Conside
The following free cash flows (in $ Million) are projected for the next five years. The free cash flows are expected to grow at a stable rate of 7% for every year after year 5. The opportunity cost of capital is 10%. Year 1/Free Cash Flow is 5 Year 2/Free Cash Flow is 12 Year 3/Free Cash Flow is 24 Year 4/Free Cash Flow i
1) other things held constant, which of the following alternatives would increase a company's cash flow for the current year? A) increase the number of years over which fixed assets are depreciated for tax purposes. B) pay down the accounts payable C) reduce the days sales outstanding without affecting sales or operatin
Phyllis believes that the firm should use straight-line depreciation for a capital project because it results in higher net income during the early years of the project's life. Joanna believes that the firm should use the modified accelerated cost recovery system depreciation because it reduces the tax liability during the early
1. Having $200 in one year is equivalent to having what amount today? $218.08 $408.00 $192.31 $208.00 $800.00 2. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or Why not? 3.What is the no-arbitrage price of
You work for the 3T company, which expects to earn at least 18% on its investments. You have to choose between two similar projects. Below is the cash information for each project. Your analysts predict that the inflation rate will be a stable 3% over the next seven years. Which of the two projects would you fund if the decision
Existing machine: Costs: 82,500, fully depreciated except for 7,500 salvage value. Operating costs: Maintenance: 67,500 Costs from alternatives (after five years, both machines have for tax purpose a zero salvage value): Machine 1 Purchase: 160,000 Operating costs: 45,000/ year Maintenance: 27,000 for the first th
True/False 1. The money market is usually thought of as dealing with long-term debt instruments issued by firms with excellent credit ratings. 2. For a firm to have its securities listed on an exchange, it must meet certain requirements. These usually include measures of profitability, size, market value, and
Problem 1: Botox Facial Care had earnings after taxes of $280,000 in 2006 with 200,000 shares of stock outstanding. The stock price was $30.80. In 2007, earnings after taxes increased to $320,000 with the same 200,000 shares outstanding. The stock price was $40.00. Compute earnings per share and the P/E ratio for 20
You use constant growth dividend valuation model (i.e. Gordon model) to find the current market price of a stock. The required rate of return for this stock increases from 15 to 17 percent combined with an increase in the growth rate from 7 to 9 percent. Given these changes, show whether the price of the stock will rise or fall
Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: ======================================================== YEAR PROJECT A PROJECT B -------------------------------------------------------------------------
A US exporter has a Thai baht account receivable resulting from an export sale on April 1 to a customer in Thailand. The exporter signed a forward contract on April 1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht receivable. The spot rate was $0.022 on that date, and the forward rate was $0