The current market rate for a bond is 8%. Calculate the selling price of the following bonds assuming annual interest payments: A. 5% bond with 2 years until maturity. B. 5% bond with 5 years until maturity. C. 10% bond with 5 years until maturity. Which bond is currently the most valuable? Why?
You put half of your money in a stock that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in another stock that has an expected return of 6% and a standard deviation of 12%. The two stocks have a correlation coefficient of 0.55. The standard deviation of the resulting portfolio will
The Houston Corp. needs to raise money for an addition to its plant. It will issue 300,000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150,000. Presently Houston Corp has earnings of $3 million and 750,000 shares outstanding.
Sporty Inc, a sport equipment manufacturer, is considering a new project that will take advantage of excess capacity in an existing plant. The plant has a capacity to produce 50,000 tennis rackets, but only 25,000 are currently being produced. The sales of the tennis rackets, however, are expected to increase 10% a year. The fir
Suppose the risk-free interest rate is 4%. a. Having $200 today is equivalent to having what amount in one year? b. Having $200 in one year is equivalent to having what amount today? c. 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?
Suppose you are the CFO of a major corporation who is deciding in whether to issue debt or equity in order to finance the firms operations which are growing more than 15% a year, bottom line growth, in the health care field. Which form of financing would you choose and why? What are the advantages of each?
What are the advantages and disadvantages to issuing debt vs equity?
Using the financial statements of Landry's Restaurants located in Appendix A of the text, Fundamentals of Financial Accounting 1st ed., by Phillips, Libby, and Libby, compute the following ratios for 2002 and 2003: a. Net profit Margin b. Gross profit margin c. Fixed asset turnover d. Return on equity (ROE) e. Earnings per
15-12A. (Break-even point) You are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the following cost structure information for this company. All of it pertains to an output level of 10 million units. Using this information, find the break-
Your brother, Eric, has asked your advice on creating a retirement plan. He is 35 years old, earns US$55,000 per year with average raises of 4% per year, and plans to work until the age of 65. His company offers a 401(k) plan with matching contributions of up to 8% of his income that has been earning an average of 10% per year.
A 5-year treasury bond has a 5% yield. a 10-year treasury bond has a 6% yield. a 10-year corporate bond has an 8% yield. the market expects that inflation will average 2.5% over the next 10 years (IP10=2.5%). Assume that there is no maturity risk premium (MRP=0), and that the annual real risk-free rate of interest, r*, will rema
Capra's stock trades at $60 a share. Capra's stock trades at $60 a share. The company is contemplating a 3-for-2 stock split. Currently, the company has EPS of $3.00, DPS of $0.50, and 10 million shares of stock outstanding. Assuming that the stock split will have no effect on the total market value of its equity, what wil
Assume that in recent years, both expected inflation and the market risk premium (rM - rRF) have declined. Assume also that all stocks have positive betas. Which of the following would be most likely to have occurred as a result of these changes? A. The average required return on the market, rM, has remained constant, but the
Which of the following statements is CORRECT? A. The constant growth model takes into consideration the capital gains earned on a stock. B. It is appropriate to use the constant growth model to estimate stock value even if the growth rate is never expected to become constant. C. Two firms with the same expected dividend and
Stock A has an expected return of 10% and a beta of 1.0. Stock B has a beta of 2.0. Portfolio P is a two-stock portfolio, where part of the portfolio is invested in Stock A and the other part is invested in Stock B. Assume that the risk-free rate is 5% and that the market is in equilibrium. Portfolio P has an expected return of
Developing responses to assessed risks Your client, General Television, Inc. manufactures televisions and during the current year acquired Micro Engineering, Inc., which manufactured flat panel plasma screens for computers so that it could compete in the market for flat panel televisions. Following is a list of several risks
Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rxy, is zero. Which of the following statements best descr
Which of the following ratios measures an organization's liquidity? a. Acid test ratio b. Debt ratio c. Return on equity d. Times interest earned e. Return on assets 2. Which of the following ratios would tell an investor about the profitability of the organization?
A.) On January 1, 2007, Sammy Sosa offers to buy Mark Grace's used snowmobile for $8,000, payable in 5 equal installments, which are to include 8.25% interest on the unpaid balance and a portion of the principal. If the first payment is to be made on January 1, 2007, how much will each payment be? B.) Repeat the requirements
Various questions. 1. Managerial accounting information A) pertains to the entity as a whole and is highly aggregated. B) must be prepared according to generally accepted accounting principles. C) pertains to subunits of the entity and may be very detailed. D) is prepared only once a year. 2. Which one of the follo
What amount of cash will be made available for other uses under the lockbox system? Evaluate the proposed relaxation, and make a recommendation to the firm. Determine the effective annual rate associated with this loan.
Problem 1: American Steel and Rubber feels that a lockbox system can shorten its accounts receivable collection period by 2 days. Credit sales are $3,000,000 per year, billed on a continuous basis. The firm has other equally risky investments with a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume
I have several things to accomplish for an indepth company analysis on GM for 3 years. I am having difficulty with collecting the data and doing the ratios. I then have to answer the following questions. Collect stock data?price, shares outstanding, etc. Calculate financial ratios, and compare to industry average. What ca
Executive Chalk (Cheese) is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds to buy back common stock. a. How is the market price of the stock affected by the announcement? b. How
Your friend, Michelle, has just purchased a business. Because Michelle knows that you have just received your Associate's in Management at a university, she has asked for you help in evaluating the firm. Michelle is not asking you to make a decision for her; she just wants you to help provide her with facts as you see them. Y
What is your interpretation of the efficient frontier and its portfolios? Based on your investment objective what portfolio would you prefer on the efficient frontier and explain why your choice is better than other portfolios with the same or similar objective but are not on the efficient frontier.
All Clear Company is a large manufacturer of custom draperies. In all, the company has seven divisions spread out across the country. Furthermore, the company has adopted a policy of issuing digital certificates for all company transactions, and it has even decided to issue digital credentials for all key employees. The typic
Would you please explain these questions: 1. How does the use of indifference curves help determine which portfolio an investor would choose on the efficient frontier? What do the indifference curves implies about an investor's willingness to bear risk? 2. How are the capital market line (CML) and the security market line
A company is not expected to generate a FCF over the next four years. Five years from now, the company anticipates that it will generate a FCF of $1.00 (i.e., FCF5=$1.00). The market expects that the FCF will grow at a constant rate of 5 percent per year forever. The risk-free rate is 5 percent, the company's beta is 1.2, and th
See the attached file. Given the return data on three countries over a period of 2007-2010, calculate the expected return over the 4 year period. Calculate the standard deviation of returns over the 4 year period for each of the three alternatives. Use your finding in part a and b to calculate the coefficient of variation for
Need help in solving these problems: 1. Given the following financial data: net income/sales = 5%; sales/total assets = 2.5; debt/total assets = 60 percent; compute: a. Return on assets. b. Return on equity. 2. Explain in problem 1 why return on equity was so much higher than return on assets. 3. A firm has assets