5- Problem 9-04 (Nonconstant Growth Valuation) Holt Enterprises recent.pdf

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5. Problem 9.04 (Nonconstant Growth Valuation) Holt Enterprises recently paid a dividend, D 0 , of $1.25 . It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 15% . a. How far away is the horizon date? I. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. II. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2 . III. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. IV. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. v. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero. b. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What is the firm's intrinsic value today, P 0 ? Do not round intermediate calculations. Round your answer to the nearest cent. $.

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Enterbrises recently paid a dividend, Do, of 54.00. It expects to have nonconstant growth of 12% for 2 years followed by a constant rate of 8% thereafter. The fermis required return is 11% . a. How far away is the horizon date? 1. The terminal, or horizon, date is the date when the groweh rete becomes nonconstant. This occurs at time zero. 11. The terminal, or horizon, date is the date nhen the growth rate becomes constant. This occurs at the beginning of Year 2 . Iit. The terininal, or harizen, date is the date ahen the growth rate becomes constant, This occurs at the end of Year 2 . TV. The terminal, or horizoo, date is infinity since common atocks do not have a maturity date. V. The terminal, or horion, date is Year o vince the value of a common stock is the present value of al future expected dividends at time sero. b. What is the firm's horison, or continuing, value? Do not round intermediote caloulseions. Round your answer to the nearent cent? c. What is the firm's intrinsic vaive today. P 6 > Do not round intermedite cakulations. Round your mosmer to the nearest cent..

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Problem 9-4 Nonconstant growth valuation Hart Enterprises recently paid a dividend, DO of $1.00. It expects to have nonconstant growth of 14% for 2 years followed by a constant rate of 4% thereafter. The m s required return is 16% a. How far away is the horizon date? I. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. II. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero III. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. IV. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. V. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. Select- b. What is the firm\'s horizon, or continuing, value? Round your answer to two decimal places c. What is the firm\'s intrinsic value today, Po? Round your answer to two decimal places. Solution Answer a. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. Answer b. D0 = $1.00 Growth rate for next 2 years is 14%, followed by an constant growth rate (g) of 4% D1 = $1.00 * 1.14 = $1.14 D2 = $1.14 * 1.14 = $1.2996 D3 = $1.2996 * 1.04 = $1.3516 Required return, r = 16% Horizon Value of Firm = D3 / (r - g) Horizon Value of Firm = $1.3516 / (0.16 - 0.04) Horizon Value of Firm = $11.26 Answer c. Intrinsic Value of Firm = $1.14/1.16 + $1.2996/1.16^2 + $11.26/1.16^2 Intrinsic Value of Firm = $10.32.

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Financial Analysis and Decision Making Make sure all work is legible and all work is shown for problems 16 – 27. FOR MULTIPLE CHOICE, HIGHLIGHT OR BOLD YOUR RESPONSE 1. Moshen Corporation just announced that its net income was lower than last year. Nevertheless, analysts estimate that the company’s net cash flow increased. What factors could explain this inconsistency? a. The company’s depreciation expense increased. b. The company’s interest expense declined. c. The company had an increase in its non-cash revenues. d. Answers a and b are correct. e. Answers b and c are correct. 2. Rivers Edge Inc. has annual sales of $737,000. Earnings before interest and taxes is equal to 21 percent of sales. For the period, the firm paid $7,900 in interest. What is the profit margin if the tax rate is 35 percent? a. 12.46 percent b. 12.95 percent c. 13.33 percent d. 15.29 percent e. 16.11 percent 3. Of the following activities, which will increase cash? a. increasing inventory b. repurchasing shares of stock c. increasing accounts payable d. buying new equipment e. increasing prepaid taxes 4. All else held constant, which will increase the present value of an annuity? I. Increase in the number of payments II. Increase in the interest rate III. Decrease in the interest rate. IV. Decrease in the payment amount a. I and II only b. I and III only c. II and IV only d. I, II, and IV only e. I, III, and IV only 5. An investment will pay $3,500 five years from now. If the going interest rate on the 5-year security is 4.25%, how much is it worth today? a. $1,928.78 b.$2,030.30 c. $2,131.81 d.$2,238.40 e. $2,842.42 6. Standard deviation measures _____ risk while beta measures _____ risk. a. systematic; unsystematic b. unsystematic; systematic c. total; unsystematic d. total; systematic e. asset-specific; market 7. Forever Memories Corp. just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past ten years and expects to continue doing so. What will a share of this stock be worth six years from now if the required return is 16 percent? a. $23.60 b. $24.65 c. $25.08 d. $25.50 e. $26.90 8. Main distinguishing differences between debt and equity capital consist of all of the following EXCEPT: a. Debtholders have no voice in management so long as the issuer does not violate stated contractual obligations. b. Claims on income and assets are as follows: bondholders, preferred shareholders, common shareholders. c. Debt has a stated maturity, while equity does not. d. In terms of tax treatment, common equity is entitled to a tax deduction. e. Common stockholders have voting rights. 9. The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: a. produce a positive annual cash flow. b. produce a positive cash flow from assets. c. offset its fixed e ...

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FIN534 Week 2 Scenario Script: Financial Statements and Reports, Financial Analysis, Corporate ratios and benchmarking Slide # Scene/Interaction Narration Slide 1 Scene 1 · Linda in her office · Don enters with · Linda’s Phone Rings · End of scene FIN534_2_1_Linda-1: Hello, I hope you are ready to get started today because Don gave us our first analysis project. He would like us to review some of TFC’s financial reports. FIN534_2_1_Don-1: Hello everyone. I just came from the accounting department where I was able to get TFC’s balance sheets and income statements for the prior two years. The accounting department also provided an estimate of TFC’s balance sheet and income statement after the acquisition, considering it occurs. I would like for you to review the statements and determine the financial strength of our company. We pride ourselves in having a strong cash base. We are hoping this project will keep our cash account strong. Let’s go to the conference room so I can show you the reports and review some of the accounts with you. FIN534_2_1_Linda-2: (Phone rings)Hello. (wait a few seconds). Thank you. I will be right over. FIN534_2_1_Linda-3: Sorry I cannot join you as an important matter came up at one of our facilities. FIN534_2_1_Don-2: Not a problem. I have faith in our Strayer intern. So, we will review the forms in the conference room. Slide 2 Scene 2 · In conference room with spreadsheets up · Put the three areas of Balance Sheet on a slide · Show the formula · Go to next slide FIN534_2_2_Don-1: So, it looks like this one is all on you. Here is the balance sheet and the income statements. I was able to gather the information from the last two years of TFC’s annual report, which you know also includes the statement of stockholders’ equity and the statement of cash flows. FIN534_2_2_Don-2: Let’s take a quick look at the Balance Sheet. It shows a snapshot of TFC as of December 31st of the past two years as well as this year which is an estimated number. It is pretty much showing us what the company looks like at those points in time. The amounts can change significantly from one day to the next. For example.if there is a big cash payment, then the cash account will go down overnight! There are three main areas to a Balance Sheet and they include assets, liabilities, and equity. The Balance Sheet also says everything should add up or balance and the formula for this is: assets equal liabilities plus equity. Slide 3 Scene 3 · Don shows Asset account · Go to next slide FIN534_2_3_Don-1: Assets are what TFC owns and the accounts consist of current and long term assets. Current assets are typically considered by TFC to be those accounts that will be turned into cash within one year. The long term assets also known as fixed assets are those that have longer than one year of an expected life on the books. Now let’s take a look at the other side of the Balance Sheet equation. Slide 4 Scen ...

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Emerging Ethical Issues XXXXXX September 8, 2014 xxxxx By: Team A Eugene Adamos, Delano Chambers, Chantle Ferguson, Kelli Lee, April Porter Introduction Team A 2 References Team A 3 What issues involve problems with consent? Team A 4 Questions assigned in this assignment are similar to problems assigned above. However, the numbers in these questions are different from your textbook. You must show the work to get full credit in each question. Assigned problems: Problem 5-9 Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. a. 1. What will be the value of each of these bonds when the going rate of interest is 4%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ 2. What will be the value of each of these bonds when the going rate of interest is 7%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ 3. What will be the value of each of these bonds when the going rate of interest is 11%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)? I. Longer-term bonds have more interest rate risk than shorter-term bonds. II. Shorter-term bonds have more interest rate risk than longer-term bonds. III. Longer-term bonds have more reinvestment rate risk than shorter-term bonds. Problem 5-12 Bond Yields and Rates of Return A 25-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,100. The bond sells for $950. (Assume that the bond has just been issued.) a. What is the bond's yield to maturity? Round your answer to two decimal places. b. What is the bond's current yield? Round your answer to two decimal places. c. What is the bond's capital gain or loss yield? Loss should be indicated with minus sign. Round your answer to two decimal places. d. What is the bond's yield to call? Round your answer to two decimal places. Problem 5-23 Determinants of Interest Rates Suppose you and most other investors expect the inflation rate to be 6% next year, to fall to 4% during the following year, and then to remain at a rate of 3% thereafter. Assume that the real risk-free rate, r*, will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very short-term securities (those that mature in a few days) to a level of 0.2 percentage points for 1-year securities. Furthermore, maturity risk premiums ...

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Question #3 FlipCorp.hasthefollowinginformationregardingitsallowanceforuncollectibleaccounts. BalanceDecember31, 2014 $28,000 Write-offsduring2015 (27,000) Recoveriesduring2015 7,000 RequiredallowanceatDecember31, 2015 31,000 Prepare t he journal entries for the write-offs and recoveries for 2015, and for the provision for Uncollectible accounts expense at December 31,2015. Do not provide any journal explanations. If no entry is necessary, write "no entry." (please be sure to fill the date, account name and debit/credit) General Journal: Write-offs: Date Account Debit Credit Question#2 On January 1, 2014, Floppy enters into an agreement with State Finance Corporation to sell a group of receivables without recourse. The total face value of the receivables is $150,000. State Finance Corp. will charge 15%interest on the weighted-average time to maturity of the receivables of 95 days plus a 2%fee. Do not provide any journal explanations. If no entry is necessary, write "no entry." Date Account Debit Credit Question #3 Floopy uses the periodic inventory method for inventories. Prepare the journal entries for each of the following transactions. Do not provide any journal explanations. If no entry is necessary, write "no entry." Floopy uses the net method for recording inventory transactions. >> On January 5, year 2, purchased $17,000 of garden tillers on account fromFlip, terms 2/10, n/30, FOB destination. Freight charges were $200. >> On January 10, year 2, returned garden tillers worth $2,000 to Flip due to defects. >> On January 24, year 2, paid for tillers purchased fromFlip. >> On January 28, year 2, purchased $30,000 of lawn mowers fromFlam, terms 3/10, n/30, FOB shipping point. The freight charges were $820. >> On February 6, year 2, paid for the lawn mowers purchased on January 28, year 2, fromFlam. AllowanceforUncollectibleAccountsandProvisionforUncollectibleAccounts Date Account Debit Credit Question#4 On January 2, 2014, Floppy Co. issued 6% bonds with a face value of $440,000 when the market interest rate was 8% for $380,208. The bonds are due in ten years, and interest is payable every June 30 and December 31. Floppy does not elect the fair value option for reporting its financial liabilities. Do not provide any journal explanations. If no entry is necessary, write "no entry." Round all numbers to the nearest dollar. Required: a. Prepare the journal entries for the bond issue on January 2, 2014. b. Prepare the journal entry for the interest payment on June 30, 2014. c. Prepare any required end of 2014 adjusting entry. General Journal: Date Account Debit Credit Question#5 January 1, 2014, Frick Co. issued 3,000 of its 9%, $1,000 face value bonds at 101 1/2. In connection with the sale of these bonds, Frick paid the following expenses: Promotion costs $ 20,000 Engraving and pri ...

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