Stock X has a required return of 12 percent, a dividend yield of 5 percent, and its dividend will grow at a constant rate forever. Stock Y has a required return of 10 percent, a dividend yield of 3 percent, and its dividend will grow at a constant rate forever. Both stocks currently sell for $25 per share. Which of the following
Next year's dividend for ERT stock is expected to be $4.00. You expect it to be $4.00 in 2 years, also, but then you expect it to grow at an 8% annual rate forever. If the risk-free rate of interest is 1%, the expected market return is 9%, and the ERT's beta is 2.0 then what is the price of the stock, today?
What is the net present value of a project that requires a net investment of $76,000 and produces net cash flows of $22,000 per year for 7 years? Assuming the cost of capital is 15 percent. (Present value (PV) of inflows less Net Investment (NINV) The four answers to choose from are the following: a. $91,520 b. $15,520 c.
After years of dreaming about owning your own business, you decided that owning a coffee shop would be perfect. Rather than start from scratch, however, you and your partners decide to look at two existing establishments, Better Brew and Perfect Blend. The two are for sale at the same price, and they are located in equally attra
The DMT Company is financed entirely with equity. DMT has a beta of 1.20 and the current risk-free rate of 9.5%. If the expected market return (Km)is 14%, what rate of return should DMT require on a project of average risk? [ke=krf + (km-krf)(B)] The following choices are one of the answers: a. 14.9% b. 15.4% c. 14.0% d.
What is the net investment for an extruder that costs $42,000, if shipping costs are $1,500 and installation is $4,800? Assume this efficient machine is replacing an older extruder with a book and market value of zero. The replacement investment will reduce operating costs by $6,600 a year. The following choice are: a. $48,
ABC Hospital laundry department cleans laboratory jackets for the housekeeping and laboratory departments. The budgeted volume of jackets was 100 for housekeeping and 200 for laboratory. Housekeeping actually used 100, but laboratory used only 150. Fixed costs for the laundry were budgeted at $150. Variable costs were budgete
Needs to be done on excel spreadsheet. Please be as explicit as possible. Thanks 1. Supernormal Growth. Finley Co. is growing quickly. Dividends are expected to grow at 25 percent rate for the next three years, with a growth rate falling off to a constant 6 percent thereafter. If the required rate of return is 14 percent and
American Hardware, a national hardware chain, is considering purchasing a smaller chain, Eastern Hardware. American's analysts project that the merger will result in incremental free flows and interest tax savings with a combined present value of $72.52 million, and they have determined that the appropriate discount rate for val
1. Consider the following information 1998 1999 2000 2001 2002* Year end Stock Price 15.15 17.10 21.00 20.05 11.05 Year end Dividend 0.15 0.15 0.18 0.18 0.10 * In 2002, there was a 2 for 1 stock split a. Compute the returns for each of the final four years, the holding period return, and the
4. You can invest in a portfolio that has an expected return of 8% and a standard deviation of 0.10. You can also borrow and lend any amount at the risk free rate of 3%. a. Create a portfolio that will have a standard deviation of 0.15 and compute this portfolio's expected return. b. If the portfolio is the market portfolio,
3. Consider two securities with expected return of 16% and 20% and standard deviation of 25% and 40%, respectively. a. If the returns of the two assets are perfectly correlated, create a portfolio with an expected return of 24%. Find the standard deviation of that portfolio. b. Create a portfolio with a standard deviation o
Clarion contractors completed the following transactions and events Jan 1 paid 255440 cash plus 15200 in sales tax and 2500 in transportation fees for a new loader. Loader has a four year life and a 34740 salvage value. Loader costs are recorded in the equipment account. Jan 3 Paid 3660 to enclose the cab and install air
In January of 2005 Keona Co pays 2800000 for a tract of land with two buildings on it. it plans to demolish building one and build a new store. Building two will be a company office it is appraised at 641300 with a usefull life of 20 years and an 80000 salvage value. Without the buildings and improvements the tract of land is
Axel Telecommunications has a target capital structure that consists of 70 percent debt and 30 percent equity. The company anticipates that its capital budget for the upcoming year will be $3,000,000. If Axel reports net income of $2,000,000 and it follows a residual distribution model with all distributions as dividends, what w
Schweser Satelites Inc. produces satellite earth stations that sell for $100,000 each. The firm's fixed costs, F, are $2 million; 50 earth stations are produced and sold each year; profits total $500,000; and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change it production process, addi
Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (i.e., D1=$0.50). The dividend is expected to grow at a constant rate of 7 percent a year. The required rate of return on the stock, rs, is 15 percent. What is the value per share of the company's stock?
One year treasury securities yield 6.9 percent, while 2-year Treasury securities yield 7.2 percent. If the expectations theory is correct (that is, the maturity risk premium = 0) what does the market anticipate will be the yield on 1-year treasury securities on one year from now? a. 6.0% b. 6.7% c. 7.2% d. 7.5%
A firm has the following balance sheet: Cash $20 Accounts receivable $20 Inventory $20 Common stock $80 Accounts payable $20 Notes payable $40 Long-term debt $80 Fixed assets $180 Total assets $240 Retained earnings $20 Total liabilities and equity $240 Sales fo
All else equal, which of the following is likely to increase a company's additional funds needed (AFN)? A. An increase in its dividend payout ratio. B. The company has a lot of excess capacity C. Accounts payable increase faster than sales. D. All the statements above are correct. E. None of the statements ab
IBM just paid (t=0) a $2.00 dividend. The required rate of return for IBM stock is 22%. If a price of a share of IBM is expected to be $82.1516 at the end of year 2 (t=2), what is IBM's expected growth rate? possible answers: a)16% b)11% c)11.5% d)18% e)10.5% f)14.5% g)16.5% h)12% i)22.5% j)13.5%
Napa Auto Parts' last dividend (t=0) was $1.00 and the company expects to experience no growth for the next 3 years (from t=0 - t=3). However, Napa will grow at an annual rate of 10% between the third and fourth year and between the fourth and fifth years. Starting from the end of the fifth year, Napa will grow at a 5% rate, t
Napa Auto Parts' last dividend (t=0) was $1.00 and the company expects to experience no growth for the next 3 years (from t=0 - t=3). However, Napa will grow at an annual rate of 10% between the third and fourth year and between the fourth and fifth years. Starting from the end of the fifth year, Napa will grow at a 5% rate, t
CASE STUDY - PART 3 JKD Memorial Hospital The first quarter is now complete and your boss has asked you to perform a variance analysis of the Nursing Department at JKD Memorial. As you may recall, the quarterly departmental budget for nursing was as follows:... In addition, it was assumed that there would be a total of
YOU PLAN TO RETIRE IN 20 YEARS.WHEN YOU RETIRE,YOU WILL NEED $150,000 PER YEAR FOR TWENTY-FIVE YEARS WITH THE FIRST PAYMENT NEDDED AT T=21.YOU EXPECT TO RECEIVE $50.000 FROM A TRUST AT T=15 WHICH YOU WILL DEPOSIT IN YOUR RETIREMENT ACCOUNT.AT T=10 ,YOU PLAN TO TAKE A WORLD CRUISE THAT WILL COST YOU $55,000 TO BE PAID OUT OF THE
A stock's return has the following distributions: Demand for the Probability of Rate of Return Company's This Demand If This Products Occuring Demand Occurs Weak 0.1 (50%) Below Average 0.2 (5) Average
Decompose the return on equity for the FY ending on January 31st, 2004 in its five components below: ROE = EAT/EBT X EBT/EBIT X EBIT/SALES X SALES/INV.CAP. X INV.CAP/SH.EQUITY Please show ALL work Use these links: http://finance.yahoo.com/q/is?s=SPLS&annual http://finance.yahoo.com/q/bs?s=SPLS&annual http://f
Short Answer 1. What is the difference between stock price maximization and profit maximization? Under what conditions might profit maximization not lead to stock price maximization? 2. Assume that you are serving on the board of directors of a medium-sized corporation and that you are responsible for establishing the com
Kaye Co. issued $1 million face amount of 11% 20-year bonds on April 1, 2004. The bonds pay interest on an annual basis on March 31 each year. Required: (a) Assume that market interest rates were slightly lower than 11% when the bonds were sold. Would the proceeds from the bond issue have been more then, less than, or equa
IF US PRICES ARE EXPECTED TO RISE BY 3% OVER THE COMING YEAR AND PRICES IN FRANCE ARE EXPECTED TO RISE BY 7 % DURING THE SAME TIME,WHAT IS THE EXPECTED SPOT RATE IN ONE YEAR OF THE FRENCH FRANC GIVEN THA THE CURRENT SPOT EXCHANGE RATE US $0.168.