McCoy, Inc. has equity with a market value of $40 million and debt with a market value of $20 million. The cost of the debt is 6 percent semi-annually. Treasury bills that mature in one year yield 5 percent per annum, and the expected return on the market portfolio over the next year is 15 percent. The beta of McCoy's equity
You have taken over management of a small concession stand on a local beach for the summer. Your main product is iced water, popular on hot days. You've been selling 400 cups per day at 50 cents each. The cups cost 5 cents each. One of your customers suggests that you cut the price to 40 cents and you'll make more money. Fo
MICROLIMP'S account receiveables total $4,000,000 on annual sales of $400 million. What is the companys average collection period?
Company has annual sales of $5 million, maintains a net after tax profit margin of 5% and has a sales to assets ratio of 4. What is the return on assets? If its debt/equity ratio is 0.5, what is the return on equity?
Jelly Beans, Inc., is proposing a rights offering. There are 100,000 outstanding shares at $25 each. There will be 10,000 new shares issued at a $20 subscription price. 1. What is the value of a right? 2. What is the ex-rights price? 3. What is the new market value of the company? 4. Why might a company have a rights of
Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 9 percent loan, with gross proceeds of $4,250,000. Kendrick's pretax cost of debt is 9 percent. Flotation costs are estimated to be 1.25 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. Kendrick is
Honda and GM are competing to sell a fleet of 25 cars to Hertz. Hertz fully depreciates all of its rental cars over five years using the straight-line method. The firm expects the fleet of 25 cars to generate $100,000 per year in earnings before taxes and depreciation for five years. Hertz is an all-equity firm in the 34-percent
The ledger of Salizar Company at the end of the current year shows Accounts Receivable $110,000, Sales $840,000, and Sales Returns and Allowances $40,000. Instructions (a) If Allowance for Doubtful Accounts has a credit balance of $2,500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debt
See the attached file.
4. Your firm has an average collection period of 48 days. Current practice is to factor all receivables immediately at a 2 percent discount. What is the effective cost of borrowing in this case? Assume that default is extremely unlikely. 5. Firm Z has net working capital of $900, current liabilities of $4,320, and inventory o
You believe that the required return on Dynegy stock is 16% and that the expected dividend growth rate is 12%, which is expected to remain constant for the foreseeable future. Is the stock currently overvalued, undervalued, or fairly priced? a. Overvalued b. Undervalued c. Fairly priced d. Cannot tell without more info
Acme is assessing its employee pension fund. At the end of each of the next 23 years Acme will have to pay its retirees 9753. If the fund is estimated to earn D% (D = 3%), how much does Acme need to have set aside today to ensure that it can meet its future obligations? Bal=0 at end of 23 yrs.
Your uncle has given you three alternatives for your inheritance. You can have $12,000 now; $2,000 per year for the next eight years; or $18,000 at the end of eight years. You assume your opportunity cost or discount rate is 12% annually. Which inheritance alternative would be best? Why? (see details in attached file) Con
True False 1. The discount rate is related to the capitalization rate by the relationship discount rate = capitalization rate + long term sustainable growth rate. T or F? 2. The concept of present value is the inverse of future value compounding. T or F? 3. The IRR is the discount rate that will cause the net present val
The demand equation for the Widget Company has been estimated to be: Qd = 30,100 +10I -50P +20Pc, where Q = monthly number of widgets sold, I = average monthly inocme, P = price of widgets, and Pc = average price of competing products. (1) If next month's income is forecast to be 2,000, the price of competing products is fo
See the attached file. 9. Marcia is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing $60,000 annually. She is expected to live for 20 years following her retirement. Her financial advisor thinks she can earn 9% annually, both before and after retirement. How much does sh
4. Smith Devices is contemplating the purchase of National Widget Company. The values of the two companies as separate entities are $20 million and $10 million, respectively. Smith estimates that by combining the two companies it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Smith is will
A) Firm A is an all equity financed firm. Its current equity price is £1.06 cum dividend. Also, its current earnings per share (eps) and current dividend payment are 20p and 12p, respectively. The market expects the ratio of eps to dividend to stay the same in the future. Firm A's rate of return on reinvested funds is equal to
If a company has an excess of cash what are the advantages and disadvantages of paying its suppliers more quikly or reducing the companies outstanding debts?
Risk-Adjusted NPV Real Time Systems Inc. is considering the development of one of two mutually exclusive new computer models. Each will require a net investment of $5000. the cash flow figures for each project are shown below: Period Project A Project B 1 $2,000 $3,000 2 $2,
Valuing Stocks 10. Stock Values: Integrated Potato Chips paid $1.00 per share dividend yesterday.You can expect the dividend to grow steadily at a rate of 4 percent per year. a. What is the expected dividend in each cash of the next 3 years? b. If the discount rate for the stock is 12 percent at what price will the stock se
I would like help on identify the relative advantages and disadvantages of each of the three primary cost allocation methods (Direct Allocation, Step-Down Allocation, and Reciprocal Allocation).
Based on the following information what is the sustainable growth rate? Profit Margin = 10.2% Captial Intensity Ratio = .70 Debt-equity Ratio = .50 Net Income = $30,000 Dividends = $6,000 What is the ROE here?
Company A has additions to retained earnings for the year end of $300,000. The firm paid out $220,000 in cash dividends, and it has ending total equity of $5 million. If Comapany A currently has 300,000 shares of common stock outstanding, what are earnings per share? Dividends per share? What is book value per share? If the stoc
Use the Internet or other resources to locate an article regarding ethics considerations in financial management. Prepare an analysis of your article. Discuss how ethics impacts the financial decision-making process and explain the ethics considerations involved in the financial decision making outlined in your article. Identify
1. Explain why financial ratios are more meaningful for financial analysis than individual entries? Financial ratios are calculated from one or more pieces of information from a company's financial statements. For example, the "gross margin" is the gross profit from operations divided by the total sales or revenues of a compa
Explain how the value of the stock paying dividend is estimated. What is the difference between constant growth dividend and non-constant growth dividend models? What is meant by present value of growth opportunities (PVGO)? The current dividend is $2.00 and is expected to grow 5% indefinitely. What is the value of the company'
(See attached file for full problem description)
Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get for me. After 3 months, my investment record is as follows: IPO Shares allocated to me Price per share Initial Return A 500 $10
Cash Flows and Working Capital. A firm's balance sheets for year-end 2000 and 2001 contain the following data. What happened to investment in net working capital during 2001? All items are in millions of dollars. Dec. 31, 2000 Dec. 31, 2001 Accounts receivable 32