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Corporate Finance: Returns, Prices, Equity

CHAPTER 10: PROBLEM 1 Beginning Stock Price $84 Ending Stock Price $96 Dividend $1.40 Percentage Total Return = CHAPTER 10: PROBLEM 12 Stock Return the past 5 years -17.62% 15.38% 10.95% 26.83% 5.31% Holding Period Return for the Stock = (Note: Subtr

Estimating Factors for a Valuation Model

The value of an asset is the present value of the expected returns from the asset during the holding period. An investment will provide a stream of returns during this period, and it is necessary to discount this stream of returns at an appropriate rate to determine the asset's present value. A dividend valuation model such as t

ROE for Economic Scenarios

Pendergast, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $40,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 10 percent higher. If there is a recession, then EBIT will be 20 percent lower. Pe

Investment Analysis and Recommendation - BP

Please examine the mix of debt and equity that British Petroleum (BP) uses. After finding this information: • Compare this to an industry average or Dutch Shell. What are the differences? • Based on what you know about BP, do these differences seem appropriate? • Relate BP's capital structure choices to the appropria

The Financial Market

Using one of the financial websites, look up the five following stocks: Coca-Cola, General Electric, Exxon Mobil, Humana, and Home Depot. Determine the closing market price of common shares of each of these companies for each day the market if open during the week Aug 12-16. Also determine the PE ratio, dividend yield, and total

Finance: Preparing the Journal Entries to Record the Transaction

On the 1st December 2011, Betty, Alvin and Yogee started a watch trading company, Baywatch Pte. Ltd. with a paid up capital of $150,000 to be subscribed equally by the three. The business agreed to take over from Betty her existing watch retail and servicing equipment based on a valuation of $50,000 in lieu of her cash subscript

Hedging Fill in the Blank

See the attached file. 1) ________ is NOT a commonly used contractual hedge against foreign exchange transaction exposure. Answer Money market hedge Options market hedge Forward market hedge All of the above are contractual hedges. 2) Plains States Manufacturing has just signed a contract to sell agr

Expected Return and Risk-Free Weight

A stock has a beta of 1.20 and an expected return of 14 percent. A risk-free asset currently earns 3.0 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? (Round your answer to 2 decimal places. (e.g., 32.16)) Expected return % b. If a portfolio of the two assets has

Financial Pre-Test Problems

I am looking for the way to solve these by hand and in Excel, and also the proper answer: 1. Suppose that the following cash flows are received: 0 = -$500, 1 = $200, 2 = $200, 3 = $200 The Internal Rate of Return on the cash flows (rounded to the nearest percent) is 8%, 9%, 10%, 11%, or 12% 2. A 10-year bond payin

Production Possiblity Frontier

St Atanagio is a remote island in the Atlantic. The inhabitants grow corn and breed poultry. The accompanying table shows the maximum annual output combinations of corn and poultry that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for corn production, the

Pecking-Order and Trade-off Theories

Several theories are proposed to explain how companies deal with debt and financial distress. QUESTIONS: 1. Compare and contrast trade-off theory and pecking-order theory. 2. Describe a specific business that seems to follow trade-off theory and another that follows pecking-order theory. 3. Why would these theories b

Break-Even & Sensitivity Analysis

We are evaluating a project that costs $750,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 159,000 units per year. Price per unit is $41, variable cost per unit is $28, and fixed costs are $753,000 per year. The tax rat

Differences between Operating and Financial Leverage

Please help with the following problem regarding the differences between operating and financial leverage. Provide at least 200 words and include references in the solution. Compare operating and financial leverage. How do they differ? What are risks of having excessive financial leverage? Explain the term degree of total

Solve: For the Expected Return

Please see the attached word document to view the expected return problems. Any assistance would be appreciated. Consider the following information: Rate of Return If State Occurs State of Probability of ________________________________________ Economy State of Economy Stock A Stock B Recession 0.17

Returns and Variability

1. Returns: Suppose you bought a 6 percent coupon bond one year ago for $1040. The bond sells for 1,063 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? b. What was your total nominal rate of return on this investment over the past Year? c. If the inflation

Straight Line Method and Bond Terminology

Straight-Line Method E9. DNA Corporation issued $4,000,000 in 8 percent, 10-year bonds on February 1, 2010, at 115. Semiannual interest payment dates are January 31 and July 31. Use the straight-line method and ignore year-end accruals. Bond Terminology P2. Listed below are common terms associated with bonds: a. Bond cer

The Importance of Merger and Acquisition

Hi, I am looking for assistance with the following questions: 1. Apple Inc. is one of the best-known global technology companies. Who are Apple's primary customers? Current and potential competitors? Suppliers? How would you assess Apple's bargaining power with respect to its customers and suppliers? What are Apple's strengt

Financial Management: Component Costs of Capital/WACC

In the attached document is the Acme Manufacturing Company's abbreviated Balance Sheet for the current fiscal year. In addition, data is listed for three projects that management is evaluating for possible acceptance for this year. 1. What are the component costs of capital for Acme's existing capital? (For the common stock

Capital Budget Issues

See the attached file. 1) A corporation has the following balances sheet liabilities Current Liabilities $2,000 Long term debt $5,000 Prefered stock $2,000 Common stock $8,000 Retained earnings $3,000 $20,000 Currently, the riskless interest

Mergers, Acquisitions and Net Present Value

Think about the Textron Company and the possibility of it merging with Boeing Company. Write a two to three page paper answering the following questions: 1) If you were to pick one company (Boeing) for your SLP company (Textron) to merge with. Explain your choice with respect to possible benefits of this merger and why you wo

Debt Financing Questions

29. Bond valuation. Currently, Boston Common Community Hospital's tax-exempt bond is selling for $626.53 per bond and has a remaining maturity of twenty years. If the par value is $1,000 and the coupon rate is 7 percent, what is the yield to maturity? 30. Loan amortization. Land Hope Hospital needs to borrow $1,000,000 to pur

Find the market value of a bond in the given cases.

Bond valuation A tax-exempt bond was recently issued at an annual 12 percent coupon rate and matures 20 years from today. The par value of the bond is $1,000. a. If a required market rates are 12 percent, what is the market price of the bond? b. If required market rates fall to 6 percent, what is the market price of the bon

Investment Analysis and Recommendation - BP Oil

Please calculate the weights (proportions) of debt and equity for British Petroleum (BP). For equity you can use the market value of stock (number of shares times the current stock price). For debt, you can use the book value of long-term debt (from the balance sheet). While market values of debt are "better," they are rather di

Market Efficiency Theory

The theory of market efficiency is based on the premise that a market is considered efficient when stock prices are an actual reflection of information known about a company. U.S. markets are generally viewed as semi-strong form market efficient. QUESTIONS: What would happen if U.S. markets became less efficient? What m

EBIT and Contribution Margin

I need tutoring so I can show my work. 1. Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of

Portfolio Return and Risk Analysis

Select four stocks from,, or One should be a clothing manufacturer, one should be a retailer, one should be an automobile manufacturer, and one should be a restaurant or food producer. 1. Obtain the closing price, the change in price from the previous day, and the be

Calculate the market risk premium and NPV.

If the average annual rate of return for common stocks is 11.7%, and for treasury bills it is 4.0%, what is the market risk premium? What is the net present value (NPV) of the following cash flows at a discount rate of 9%? t=0 -250,000 t=1, 100,000 t=2, 150,000 t=3, 200,000

Straight Line Amortization of Bond Discount

Tano issues bonds with a par value of $180,000 on January 1, 2008. The bonds' annual contract rate is 8%, and interest is paid semi-annually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 10%, and the bonds are sold for $170,862. Use the straight-line method to