1. The document provides examples and explanations of stock valuation models, including the discounted dividend model and the constant growth model.
2. The constant growth model assumes dividends and stock prices will grow at a constant rate indefinitely. It provides a simplified equation to value a stock based on the next expected dividend, required rate of return, and long-term growth rate.
3. An example applies the constant growth model to value a stock with a $1.15 dividend growing at 8% annually and a required return of 13.4%, calculating the stock price as $23.
Assets
Liabilities
Total Reserves
$50,000
Demand Deposits
$180,000
U.S. Government Bonds
$110,000
Loans
$20,000
Assume the balance sheet above is for Eastlandia National Bank. The reserve requirement is 20%.
a. Given the current situation, how much money can Eastlandia National Bank lend to borrowers if it wants to keep all of its bonds?
b. Based on your answer in part (a), how much additional money can Eastlandia National Bank create? (Remember, how means how and why.)
c. Explain two reasons why the money supply may not increase by the amount you identified in part (b).
Spring 2013 Due Wed May. 15 by 4pm (my office)
1) Describe (in detail) the three forms of underwriting.
2) You want to set up an education trust for a relative starting in 2014. The trust will pay $25,000 a year starting in year 2022 and ending in year 2025. The stated annual percentage rate is 8% compounded annually.
a. How much will you have to invest in 2010 to achieve your objective?
b. How much will you have to invest each year from 2012 – 2017 to achieve your objective?
3) Samuelson Plastics has 7.5 percent preferred stock outstanding. Currently, this stock has a market value per share of $52 and a book value per share of $38. What is the cost of preferred stock?
4) Tidewater Fishing has a current beta of 1.21. The market risk premium is 8.9 percent and the risk-free rate of return is 3.2 percent. By how much will the cost of equity increase if the company expands its operations such that the company beta rises to 1.50?
5) Penn Corporation does not currently pay dividends. It is expected to begin paying dividends in year three (3) with a $2.50 dividend. This dividend is expected to grow at a rate of 14% for three years and then 6% every year after that forever. The required return on Penn’s stock is 16%. Calculate the price of Penn’s stock today.
6) Suppose Primerica has just paid a dividend of $1.75 per share. Sales and profits for Primerica are expected to grow at a rate of 5% per year. Its dividend is expected to grow by the same amount. If the required return is 12%, what is the value of a share of Primerica in 6 years?
7) IPOs typically experience underpricing. Describe (1) what is underpricing, (2) the evidence that underpricing occurs (be sure to include real world numbers/examples), and (3) why does underpricing occur.
8) Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919. The beginning and ending total debt balances were $84,652 and $78,613, respectively. The interest paid was $4,767. What is the amount of the cash flow to creditors?
9) You arrived at work today to see the CFO, COO and most of the company’s top management team taken away in handcuffs. The only executive who was not arrested was the newly appointed CEO. Before you can even reach your cube, the CEO calls you into his office to explain some incomplete project an ...
FORMULAS
𝑃𝑉 = 𝐶/(1 + 𝑟)+
𝑃𝑉 = 𝐶 ,-
.
− -
.(-0.)1
2
𝑃𝑉 =
𝐶
𝑟 − 𝑔
51 − 6
1 + 𝑔
1 + 𝑟
7
+
8
𝑃𝑉 = 𝐶/𝑟 𝑃𝑉 = 𝐶/(𝑟 − 𝑔)
𝐸𝐴𝑅 = 61 +
𝐴𝑃𝑅
𝑚
7
=
− 1
𝑃𝑉 = 𝐶 𝑒?.+, 𝑒 = 2.718
1 + 𝑅𝑒𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 =
1 + 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
1 + 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒
𝑃 = 𝑃𝑉(𝐶𝑜𝑢𝑝𝑜𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠) + 𝑃𝑉(𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒)
𝑃T = U
𝐷𝑖𝑣+
(1 + 𝑟)+
𝑃T =
𝐷𝑖𝑣-
(𝑟 − 𝑔)
𝑔 = 𝑅𝑂𝐸 × 𝑃𝑙𝑜𝑤𝑏𝑎𝑐𝑘 𝑅𝑎𝑡𝑖𝑜
𝜎^ = _𝑤`
a𝜎`
a + 𝑤b
a𝜎b
a + 2𝑤`𝑤b𝜌`b𝜎`𝜎b
𝛽e =
𝜌e,=𝜎e
𝜎=
=
𝑐𝑜𝑣(𝑟e,𝑟=)
𝜎=a
𝑟 = 𝑟f + 𝛽(𝑟= − 𝑟f)
𝑊𝐴𝐶𝐶 =
𝐷
𝑉
(1 − 𝑇i)𝑟j +
𝑃
𝑉
𝑟 +
𝐸
𝑉
𝑟k
𝐷𝑂𝐿 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑜𝑓𝑖𝑡𝑠
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
= 1 + (𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠)/(𝑝𝑟𝑜𝑓𝑖𝑡𝑠)
𝑉q = 𝑉r + 𝑃𝑉 𝑡𝑎𝑥 𝑠ℎ𝑖𝑒𝑙𝑑𝑠 − 𝑃𝑉 𝑐𝑜𝑠𝑡𝑠 𝑜𝑓 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑑𝑖𝑠𝑡𝑟𝑒𝑠𝑠
𝑉q = 𝑉s + 𝑇i𝐷
𝑟k = 𝑟t +
j
k
(1 − 𝑇i)(𝑟t − 𝑟j)
University of Guelph
Gordon S. Lang School of Business and Economics
Department of Economics and Finance
ECON*2560DE: Theory of Finance Summer Semester 2019
Key Concepts for Theory of Finance
The following is a list of some of the major concepts that have been covered during the course that you
should make sure you understand in your preparation for the final exam.
Ch. 1 – Goals and Governance of the Firm
The goal of managers is to maximize firm value
Advantages and disadvantages of a corporation
The difference between real and financial assets
Ch. 2 – Financial Markets and Institutions
Functions of financial markets and institutions
Ch. 3 – Accounting and Finance
Balance sheet, Income statement, statement of Cash flows
Market value vs. book value
Ch. 5 - Time Value of money
Single cash flow: future value, present value, how to find discount rate
Annuity: present value, how to find cash flow, annuity due, growing annuity, multiple payments
per year, amortization
Perpetuity: present value, how to find cash flow, how to find discount rate, growing perpetuity
Relationship between discount rate and PV
Inflation – real vs. nominal interest rates
Compounding (EAR)
Ch. 6 – Valuing Bonds
Calculate PV with annual or semi-annual coupons
How bond prices vary with interest rates
Relationships between - coupon rate, YTM, current yield, rates of return, and prices
Relationships between risk and maturity, risk and coupon rate
Yield curve
Bond ratings and default premium
You will not be asked to calculate Yield to Maturity
Ch. 7 – Valuing Stocks
Dividend discount model: no growth, constant growth, non-constant growth, sustainable growth
rate
Relationship between price and growth rate, ROE, plowback ratio, discount rate
Market efficiency
Ch. 11 – Introduction to Risk and Return and the Opportunity Cost of Capital
Relationship between risk and return
Unique vs market risk
Benefits of diversificati
FNCE 403v2 Assignment 3 Revised Nov. 7, 2012
Assignment 3 Details
Complete and submit Assignment 3, which is worth 15% of your final grade, after
you have finished Unit 6. If you have any questions about this assignment and how
to complete it, contact the Student Support Centre.
This assignment contains ten problems and is worth a total of 100 marks.
Read the requirements for each problem and plan your responses carefully. Ensure
that you answer each of the required questions as concisely and as completely as
possible and include supporting calculations where required.
1. (7 marks) You are a bright new analyst in the risk-management division at
RMS, a multinational technology company, and have recently been put in
charge of managing the Euro/CAD exchange-rate risk that RMS faces.
Consider RMS’s operations in Europe and Canada.
a. Suppose monthly revenues in Europe average 10 million Euros and
monthly production and distribution costs average 8 million Euro. If the
resulting profits are repatriated to the production unit in Canada monthly,
what risk does this production unit face? How might it hedge this risk?
(2 marks)
b. RMS’s worldwide retirement benefits unit is located in Canada and has the
obligation to pay its retired European employees 20 million Euros monthly.
What does this unit face and how could it hedge the risk? (2 marks)
c. Given the transactions of the production and retirement units as given
previously, what do you conclude are the exchange-rate risks faced by
RMS as a whole in Europe? Does RMS need to enter into forward
contracts? (3 marks)
2. (10 marks) Suppose the spot exchange rate between U.S. dollar and
Canadian dollar is US$1.03/C$. The U.S. dollar risk-free rate is 2% per
annum, compounded annually. The price of a two-year European call option
and put option with an exercise price of US$1.05/C$ is US$4.45 and
US$4.54, respectively. What is the Canadian dollar risk-free rate?
FNCE 403v2 Assignment 3 Revised Nov. 7, 2012
3. (10 marks) Two firms have the borrowing rates shown below.
Firm Fixed Rate Floating Rate
AAA 5 yr T-bond + 60 bp LIBOR
BBB 5 yr T-bond + 75 bp LIBOR + 30 bp
As the CFO of firm AAA, you always consider an interest rate swap before
borrowing money. Explain how, if at all, a swap with BBB would be
advantageous to you if
a. you wanted to borrow at a fixed rate. (7 marks)
b. you wanted to borrow at a floating rate. (3 marks)
4. (10 marks) A corporation enters into a $35 million notional principal plain
vanilla interest rate swap. The swap calls for the corporation to pay a fixed
rate and receive a floating rate of LIBOR. The payments will be made every
three months for one year. The term structure of LIBOR when the swap is
initiated is as follows:
Months Rate (%)
3 7.00
6 7.25
9 7.45
12 7.55
Assume all of rates are continuously compounded.
a. Determine the fixed rate on the s ...
Assets
Liabilities
Total Reserves
$50,000
Demand Deposits
$180,000
U.S. Government Bonds
$110,000
Loans
$20,000
Assume the balance sheet above is for Eastlandia National Bank. The reserve requirement is 20%.
a. Given the current situation, how much money can Eastlandia National Bank lend to borrowers if it wants to keep all of its bonds?
b. Based on your answer in part (a), how much additional money can Eastlandia National Bank create? (Remember, how means how and why.)
c. Explain two reasons why the money supply may not increase by the amount you identified in part (b).
Spring 2013 Due Wed May. 15 by 4pm (my office)
1) Describe (in detail) the three forms of underwriting.
2) You want to set up an education trust for a relative starting in 2014. The trust will pay $25,000 a year starting in year 2022 and ending in year 2025. The stated annual percentage rate is 8% compounded annually.
a. How much will you have to invest in 2010 to achieve your objective?
b. How much will you have to invest each year from 2012 – 2017 to achieve your objective?
3) Samuelson Plastics has 7.5 percent preferred stock outstanding. Currently, this stock has a market value per share of $52 and a book value per share of $38. What is the cost of preferred stock?
4) Tidewater Fishing has a current beta of 1.21. The market risk premium is 8.9 percent and the risk-free rate of return is 3.2 percent. By how much will the cost of equity increase if the company expands its operations such that the company beta rises to 1.50?
5) Penn Corporation does not currently pay dividends. It is expected to begin paying dividends in year three (3) with a $2.50 dividend. This dividend is expected to grow at a rate of 14% for three years and then 6% every year after that forever. The required return on Penn’s stock is 16%. Calculate the price of Penn’s stock today.
6) Suppose Primerica has just paid a dividend of $1.75 per share. Sales and profits for Primerica are expected to grow at a rate of 5% per year. Its dividend is expected to grow by the same amount. If the required return is 12%, what is the value of a share of Primerica in 6 years?
7) IPOs typically experience underpricing. Describe (1) what is underpricing, (2) the evidence that underpricing occurs (be sure to include real world numbers/examples), and (3) why does underpricing occur.
8) Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919. The beginning and ending total debt balances were $84,652 and $78,613, respectively. The interest paid was $4,767. What is the amount of the cash flow to creditors?
9) You arrived at work today to see the CFO, COO and most of the company’s top management team taken away in handcuffs. The only executive who was not arrested was the newly appointed CEO. Before you can even reach your cube, the CEO calls you into his office to explain some incomplete project an ...
FORMULAS
𝑃𝑉 = 𝐶/(1 + 𝑟)+
𝑃𝑉 = 𝐶 ,-
.
− -
.(-0.)1
2
𝑃𝑉 =
𝐶
𝑟 − 𝑔
51 − 6
1 + 𝑔
1 + 𝑟
7
+
8
𝑃𝑉 = 𝐶/𝑟 𝑃𝑉 = 𝐶/(𝑟 − 𝑔)
𝐸𝐴𝑅 = 61 +
𝐴𝑃𝑅
𝑚
7
=
− 1
𝑃𝑉 = 𝐶 𝑒?.+, 𝑒 = 2.718
1 + 𝑅𝑒𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 =
1 + 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
1 + 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒
𝑃 = 𝑃𝑉(𝐶𝑜𝑢𝑝𝑜𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠) + 𝑃𝑉(𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒)
𝑃T = U
𝐷𝑖𝑣+
(1 + 𝑟)+
𝑃T =
𝐷𝑖𝑣-
(𝑟 − 𝑔)
𝑔 = 𝑅𝑂𝐸 × 𝑃𝑙𝑜𝑤𝑏𝑎𝑐𝑘 𝑅𝑎𝑡𝑖𝑜
𝜎^ = _𝑤`
a𝜎`
a + 𝑤b
a𝜎b
a + 2𝑤`𝑤b𝜌`b𝜎`𝜎b
𝛽e =
𝜌e,=𝜎e
𝜎=
=
𝑐𝑜𝑣(𝑟e,𝑟=)
𝜎=a
𝑟 = 𝑟f + 𝛽(𝑟= − 𝑟f)
𝑊𝐴𝐶𝐶 =
𝐷
𝑉
(1 − 𝑇i)𝑟j +
𝑃
𝑉
𝑟 +
𝐸
𝑉
𝑟k
𝐷𝑂𝐿 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑜𝑓𝑖𝑡𝑠
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
= 1 + (𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠)/(𝑝𝑟𝑜𝑓𝑖𝑡𝑠)
𝑉q = 𝑉r + 𝑃𝑉 𝑡𝑎𝑥 𝑠ℎ𝑖𝑒𝑙𝑑𝑠 − 𝑃𝑉 𝑐𝑜𝑠𝑡𝑠 𝑜𝑓 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑑𝑖𝑠𝑡𝑟𝑒𝑠𝑠
𝑉q = 𝑉s + 𝑇i𝐷
𝑟k = 𝑟t +
j
k
(1 − 𝑇i)(𝑟t − 𝑟j)
University of Guelph
Gordon S. Lang School of Business and Economics
Department of Economics and Finance
ECON*2560DE: Theory of Finance Summer Semester 2019
Key Concepts for Theory of Finance
The following is a list of some of the major concepts that have been covered during the course that you
should make sure you understand in your preparation for the final exam.
Ch. 1 – Goals and Governance of the Firm
The goal of managers is to maximize firm value
Advantages and disadvantages of a corporation
The difference between real and financial assets
Ch. 2 – Financial Markets and Institutions
Functions of financial markets and institutions
Ch. 3 – Accounting and Finance
Balance sheet, Income statement, statement of Cash flows
Market value vs. book value
Ch. 5 - Time Value of money
Single cash flow: future value, present value, how to find discount rate
Annuity: present value, how to find cash flow, annuity due, growing annuity, multiple payments
per year, amortization
Perpetuity: present value, how to find cash flow, how to find discount rate, growing perpetuity
Relationship between discount rate and PV
Inflation – real vs. nominal interest rates
Compounding (EAR)
Ch. 6 – Valuing Bonds
Calculate PV with annual or semi-annual coupons
How bond prices vary with interest rates
Relationships between - coupon rate, YTM, current yield, rates of return, and prices
Relationships between risk and maturity, risk and coupon rate
Yield curve
Bond ratings and default premium
You will not be asked to calculate Yield to Maturity
Ch. 7 – Valuing Stocks
Dividend discount model: no growth, constant growth, non-constant growth, sustainable growth
rate
Relationship between price and growth rate, ROE, plowback ratio, discount rate
Market efficiency
Ch. 11 – Introduction to Risk and Return and the Opportunity Cost of Capital
Relationship between risk and return
Unique vs market risk
Benefits of diversificati
FNCE 403v2 Assignment 3 Revised Nov. 7, 2012
Assignment 3 Details
Complete and submit Assignment 3, which is worth 15% of your final grade, after
you have finished Unit 6. If you have any questions about this assignment and how
to complete it, contact the Student Support Centre.
This assignment contains ten problems and is worth a total of 100 marks.
Read the requirements for each problem and plan your responses carefully. Ensure
that you answer each of the required questions as concisely and as completely as
possible and include supporting calculations where required.
1. (7 marks) You are a bright new analyst in the risk-management division at
RMS, a multinational technology company, and have recently been put in
charge of managing the Euro/CAD exchange-rate risk that RMS faces.
Consider RMS’s operations in Europe and Canada.
a. Suppose monthly revenues in Europe average 10 million Euros and
monthly production and distribution costs average 8 million Euro. If the
resulting profits are repatriated to the production unit in Canada monthly,
what risk does this production unit face? How might it hedge this risk?
(2 marks)
b. RMS’s worldwide retirement benefits unit is located in Canada and has the
obligation to pay its retired European employees 20 million Euros monthly.
What does this unit face and how could it hedge the risk? (2 marks)
c. Given the transactions of the production and retirement units as given
previously, what do you conclude are the exchange-rate risks faced by
RMS as a whole in Europe? Does RMS need to enter into forward
contracts? (3 marks)
2. (10 marks) Suppose the spot exchange rate between U.S. dollar and
Canadian dollar is US$1.03/C$. The U.S. dollar risk-free rate is 2% per
annum, compounded annually. The price of a two-year European call option
and put option with an exercise price of US$1.05/C$ is US$4.45 and
US$4.54, respectively. What is the Canadian dollar risk-free rate?
FNCE 403v2 Assignment 3 Revised Nov. 7, 2012
3. (10 marks) Two firms have the borrowing rates shown below.
Firm Fixed Rate Floating Rate
AAA 5 yr T-bond + 60 bp LIBOR
BBB 5 yr T-bond + 75 bp LIBOR + 30 bp
As the CFO of firm AAA, you always consider an interest rate swap before
borrowing money. Explain how, if at all, a swap with BBB would be
advantageous to you if
a. you wanted to borrow at a fixed rate. (7 marks)
b. you wanted to borrow at a floating rate. (3 marks)
4. (10 marks) A corporation enters into a $35 million notional principal plain
vanilla interest rate swap. The swap calls for the corporation to pay a fixed
rate and receive a floating rate of LIBOR. The payments will be made every
three months for one year. The term structure of LIBOR when the swap is
initiated is as follows:
Months Rate (%)
3 7.00
6 7.25
9 7.45
12 7.55
Assume all of rates are continuously compounded.
a. Determine the fixed rate on the s ...
1. Susmel Inc. is considering a project that has the following cas.docxjackiewalcutt
1. Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback?
Year
0
1
2
3
Cash Flows
-$500
$150
$200
$300
a.
2.03 years
b.
2.25 years
c.
2.50 years
d.
2.75 years
e.
3.03 years
2. As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow?
Sales Revenues
$13,000
Depreciation
$4,000
Other operating costs
$6,000
Tax rate
35.0%
a.
$5,950
b.
$6,099
c.
$6,251
d.
$6,407
e.
$6,568
3. Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?
a.
$2.20
b.
$2.44
c.
$2.69
d.
$2.96
e.
$3.25
4. If a typical company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely
a.
become riskier over time, but its intrinsic value will be maximized
b.
become less risky over time, and this will maximize its intrinsic value
c.
accept too many low-risk projects and too few high-risk projects
d.
become more risky and also have an increasing WACC. Its intrinsic value will not be maximized
e.
continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital
5. Qualcomm Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now?
a.
$40.17
b.
$41.20
c.
$42.26
d.
$43.34
e.
$44.46
6. Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?
a.
$14.52
b.
$14.89
c.
$15.26
d.
$15.64
e.
$16.03
7. Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year
0
1
2
3
4
Cash Flows
-$950
$525
$485
$445
$405
a.
1.61 years
b.
1.79 years
c.
1.99 years
d.
2.22 years
e.
2.44 years
8. Bilulu Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost.
WACC: 8.75%
Year
0
1
2
3
4
CFS
-$1,100
$375
$375
$375
$375
CFL
-$2,200
$725
$725
$725
$725
a.
$32.12
b.
$35.33
c.
$38.87
d.
$40.15
e.
$42.16
9. Assume that Ki ...
Question 1. You can earn $40 in interest on a $1,000 deposit for.docxmakdul
Question 1.
You can earn $40 in interest on a $1,000 deposit for 8 months. If the EAR is the same regardless of the length of the investment, how much interest will you earn on a
$1,000 deposit for:
a. 2 months.
b. 1 year.
c. 1.5 years.
a. 2-months.
For a 2-month, $1,000 deposit you will earn
$. (Round to the nearest cent).
b. 1-year.
For a 1-year, $1,000 deposit you will earn
$. (Round to the nearest cent).
c. 1.5-years.
For a 1.5-year, $1,000 deposit you will earn
$. (Round to the nearest cent).
Question 2.
You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your current mortgage. The current monthly payment is $3,053 and you have made every payment on time. The original term of the mortgage was 30 years, and the mortgage is exactly four years and eight months old. You have just made your monthly payment. The mortgage interest rate is 5.798% (APR). How much do you owe on the mortgage today?
The amount you owe today is
$. (Round to the nearest dollar.)
Question 3.
Consider a project that requires an initial investment of $100,000 and will produce a single cash flow of
$150,000 in 5 years.
a. What is the NPV of this project if the 5-year interest rate is 5.0% (EAR)?
b. What is the NPV of this project if the 5-year interest rate is 10.0% (EAR)?
c. What is the highest 5-year interest rate such that this project is still profitable?
a. What is the NPV of this project if the 5-year interest rate is 5.0% (EAR)?
The NPV in this case (EAR equals 5.0 %) is $. (Round to the nearest dollar.)
b. What is the NPV of this project if the 5-year interest rate is 10.0% (EAR)?
The NPV in this case (EAR equals 10.0 %) is $. (Round to the nearest dollar.)
c. What is the highest 5-year interest rate such that this project is still profitable?
The highest EAR such that this project is still profitable is % (Round to two decimal places.)
Question 4.
In the summer of 2008, at Heathrow airport in London, Bestofthebest (BB), a private company, offered a lottery to win a Ferrari or 87,000 British pounds, equivalent at the time to about $174,000. Both the Ferrari and themoney, in 100 pound notes, were on display. If the U.K. interest rate was 4% per year, and the dollar interest rate was 2% per year (EARs), how much did it cost the company in dollars each month to keep the cash on display? That is, what was the opportunity cost of keeping it on display rather than in a bank account? (Ignore taxes.)Hint: Make sure to round all intermediate calculations to at least five decimal places.
The opportunity cost of keeping it on display rather than in a bank account is £ per month. (Round to two decimal places).
Question 5.
A 30-year bond with a face value of $1,000 has a coupon rate of 5.50%, with semiannual payments.
a. What is the coupon payment for this bond?
b. Enter the cash flows for the bond on a timeline
a. What is the coupon payment for this bond?
The coupon pay ...
Top of Form 1.Even though most corporate bonds in the .docxamit657720
Top of Form
1.
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7.4 percent paid annually.
If the yield to maturity is 8.5 percent, what is the current price of the bond?
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bond price
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7.4 percent paid annually.
If the yield to maturity is 8.5 percent, what is the current price of the bond?
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bond price
€
[removed]
2.
Assuming semiannual compounding, what is the price of a zero coupon bond with 19 years to maturity paying $1,000 at maturity if the YTM is
(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
:
Price of the Bond
a.
4 percent
b.
7 percent
c.
10 percent
References
Worksheet
Section: 8.1 Bonds and Bond Valuation
Assuming semiannual compounding, what is the price of a zero coupon bond with 19 years to maturity paying $1,000 at maturity if the YTM is
(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
:
Price of the Bond
a.
4 percent
$
[removed]
b.
7 percent
$
[removed]
c.
10 percent
$
[removed]
3.
A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 5.4 percent paid annually and matures in 16 years.
What is the yield to maturity of this bond?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Yield to maturity
%
References
Worksheet
Section: 8.1 Bonds and Bond Valuation
A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 5.4 percent paid annually and matures in 16 years.
What is the yield to maturity of this bond?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Yield to maturity
[removed]
%
4.
The next dividend payment by ECY, Inc., will be $1.76 per share. The dividends are anticipated to maintain a growth rate of 7 percent, forever. The stock currently sells for $34 per share.
What is the dividend yield?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Dividend yield
What is the expected capital gains yield?
(Do not round intermediate calculations and enter your answ ...
This is the fourth presentation for the University of New England Graduate School of Business unit, GSB711 - Managerial Finance. This presentation looks at returns on different types of investment.
Uop fin 486 week 2 individual assignment newBartholomee
fin 486 week 2 learning team assignment department budgets new,fin 486 week 2 team assignment new,fin 486 week 2 video summary new,uop fin 486,fin 486,uop fin 486 week 2 tutorial,fin 486 week 2 assignment,uop fin 486 week 2 help
09 Chapter modelChapter 9. Stocks and Their Valuation (Models)Thi.docxhoney725342
09 Chapter modelChapter 9. Stocks and Their Valuation (Models)This model is similar to the bond valuation models developed in Chapter 7 in that we employ discounted cash flow analysis to find the value of a firm's stock.THE DISCOUNTED DIVIDEND MODEL (Section 9-4)The value of any financial asset is equal to the present value of future cash flows provided by the asset. Stocks can be evaluated in two ways: (1) by finding the present value of the expected future dividends, or (2) by finding the present value of the firm's expected future free cash flows, subtracting the market value of the debt and preferred stock to find the total value of the common equity, and then dividing that total value by the number of shares outstanding to find the value per share. Both approaches are examined in this spreadsheet.When an investor buys a share of stock, he/she typically expects to receive cash in the form of dividends and then, eventually, to sell the stock and to receive cash from the sale. Moreover, the price any investor receives is dependent upon the dividends the next investor expects to earn, and so on for different generations of investors. The basic dividend valuation equation is:P0 =D1+D2+. . . .Dn( 1 + rs )( 1 + rs ) 2( 1 + rs ) nThe dividend stream theoretically extends on out forever, i.e., n = infinity. It would not be feasible to deal with an infinite stream of dividends, but if dividends are expected to grow at a constant rate, we can use the constant growth equation as developed in the text to find the value.CONSTANT GROWTH STOCKS (Section 9-5)In the constant growth model, we assume that the dividend will grow forever at a constant growth rate. This is a very strong assumption, but for stable, mature firms, it can be reasonable to assume that the firm will experience some ups and downs throughout its life but those ups and downs balance each other out and result in a long-term constant rate. In addition, we assume that the required return for the stock is a constant. With these assumptions, the price equation for a common stock simplifies to the following expression:P 0 =D 1( r s − g )The long-run growth rate (g) is especially difficult to measure, but one approximates this rate by multiplying the firm's return on equity by the fraction of earnings retained, ROE x
(1 – Payout ratio). Generally speaking, the long-run growth rate is likely to fall between 5% and 8%.EXAMPLEAllied Food Products just paid a dividend of $1.15, and the dividend is expected to grow at a constant rate of 8.3%. What stock price is consistent with these numbers, assuming a 13.7% required return?D0$2.15g8.3%rs13.7%P0 =D1=D0 (1+g)=$2.33( rs − g )( rs − g )0.054P0 =$43.12STOCK PRICE SENSITIVITYOne of the keys to understanding stock valuation is knowing how various factors affect the stock price. We construct below a series of data tables and a graph to show how the stock price is affected by changes in the dividend, the growth rate, and rs. R ...
1
Assignment 2 Winter 2022
Problem 1
Assume you have the option to buy one of three bonds. All have the same degree of default risk
and mature in 15 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has a 7 percent coupon rate and pays the $70 coupon once per year. The third has a 9
percent coupon rate and pays the $90 coupon once per year.
a. If all three bonds are now priced to yield 8 percent to maturity, what are their prices?
b. If you expect their yields to maturity to be 8 percent at the beginning of next year, what will
their prices be then? What is your before-tax holding period return on each bond? If your tax
bracket is 30 percent on ordinary income and 20 percent on capital gains income, what will
your after-tax rate of return be on each? Assume you do not sell the bonds.
c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on
each bond to be 7 percent at the beginning of next year.
d. Re-do the calculations in parts b and c above, assuming you will sell the bonds at the end of the
year.
Problem 2
A University endowment fund has sought your advice on its fixed-income portfolio strategy.
The characteristics of the portfolios current holdings are listed below:
Market
Credit Maturity Coupon Modified Value of
Bond Rating (yrs.) Rate (%) Duration Convexity Position
A Cnd. Govt. 3 0 2.727 9.9 $30,000
B A1 10 8 6.404 56.1 $30,000
C Aa2 5 12 3.704 18.7 $30,000
D Agency 7 10 4.868 32.1 $30,000
E Aa3 12 0 10.909 128.9 $30,000
$150,000
a) Calculate the modified duration for this portfolio.
b) Suppose you learn that the modified duration of the endowment’s liabilities is 6.5 years.
Identify whether the bond portfolio is: i) immunized against interest rate risk, ii) exposed to net
price risk, or iii) exposed to net re-investment risk. Briefly explain what will happen to the net
position of the endowment fund if in the future there is a significant parallel upward shift in the
yield curve.
c) Your current active view for the fixed income market over the coming months is that Treasury
yields will decline and corporate credit spreads will also decrease. Briefly discuss how you
could restructure the existing portfolio to take advantage of this view.
2
Problem 3
A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to
maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on
the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst
forecasts that 2 years from now, 18-year bonds will sell at yield to maturity of 8%, and that
coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of
7%.
a) What is the 2-year return on the bond
b) What will be the rate of return the manager forecasts that in 2 years the yiel ...
1
Assignment 2 Winter 2022
Problem 1
Assume you have the option to buy one of three bonds. All have the same degree of default risk
and mature in 15 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has a 7 percent coupon rate and pays the $70 coupon once per year. The third has a 9
percent coupon rate and pays the $90 coupon once per year.
a. If all three bonds are now priced to yield 8 percent to maturity, what are their prices?
b. If you expect their yields to maturity to be 8 percent at the beginning of next year, what will
their prices be then? What is your before-tax holding period return on each bond? If your tax
bracket is 30 percent on ordinary income and 20 percent on capital gains income, what will
your after-tax rate of return be on each? Assume you do not sell the bonds.
c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on
each bond to be 7 percent at the beginning of next year.
d. Re-do the calculations in parts b and c above, assuming you will sell the bonds at the end of the
year.
Problem 2
A University endowment fund has sought your advice on its fixed-income portfolio strategy.
The characteristics of the portfolios current holdings are listed below:
Market
Credit Maturity Coupon Modified Value of
Bond Rating (yrs.) Rate (%) Duration Convexity Position
A Cnd. Govt. 3 0 2.727 9.9 $30,000
B A1 10 8 6.404 56.1 $30,000
C Aa2 5 12 3.704 18.7 $30,000
D Agency 7 10 4.868 32.1 $30,000
E Aa3 12 0 10.909 128.9 $30,000
$150,000
a) Calculate the modified duration for this portfolio.
b) Suppose you learn that the modified duration of the endowment’s liabilities is 6.5 years.
Identify whether the bond portfolio is: i) immunized against interest rate risk, ii) exposed to net
price risk, or iii) exposed to net re-investment risk. Briefly explain what will happen to the net
position of the endowment fund if in the future there is a significant parallel upward shift in the
yield curve.
c) Your current active view for the fixed income market over the coming months is that Treasury
yields will decline and corporate credit spreads will also decrease. Briefly discuss how you
could restructure the existing portfolio to take advantage of this view.
2
Problem 3
A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to
maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on
the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst
forecasts that 2 years from now, 18-year bonds will sell at yield to maturity of 8%, and that
coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of
7%.
a) What is the 2-year return on the bond
b) What will be the rate of return the manager forecasts that in 2 years the yiel ...
Uop fin 486 week 2 individual assignment newmybrands1
fin 486 week 2 learning team assignment department budgets new,fin 486 week 2 team assignment new,fin 486 week 2 video summary new,uop fin 486,fin 486,uop fin 486 week 2 tutorial,fin 486 week 2 assignment,uop fin 486 week 2 help
Uop fin 486 week 2 individual assignment newvindaniel182
fin 486 week 2 learning team assignment department budgets new,fin 486 week 2 team assignment new,fin 486 week 2 video summary new,uop fin 486,fin 486,uop fin 486 week 2 tutorial,fin 486 week 2 assignment,uop fin 486 week 2 help
BBA 3310 Unit VI AssignmentInstructions Enter all answers.docxJASS44
BBA 3310 Unit VI Assignment
Instructions: Enter all answers directly in this worksheet. When finished select Save As, and save this document using your last name and student ID as the file name. Upload the data sheet to Blackboard as a .doc, .docx or .rtf file when you are finished.
Question 1: (10 points). (Bond valuation) Calculate the value of a bond that matures in 12 years and has $1,000 par value. The annual coupon interest rate is 9 percent and the market's required yield to maturity on a comparable-risk bond is 12 percent. Round to the nearest cent.
The value of the bond is
$814.17
Question 2: (10 points). (Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 11 percent. The interest is paid semiannually and the bonds mature in 9 years. Their par value is $1,000. If the market's required yield to maturity on a comparable-risk bond is 14 percent, what is the value of the bond? What is its value if the interest is paid annually and semiannually? (Round to the nearest cent.)
a. The value of the Enterprise bonds if the interest is paid semiannually is
$ 849.11
b. The value of the Enterprise bonds if the interest is paid annually is
$ 851.61
Question 3: (10 points). (Yield to maturity) The market price is $750 for a 20-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond's yield to maturity? (Round to two decimal places.)
The bond's yield to maturity is
6.20
%
Question 4: (10 points). (Yield to maturity) A bond's market price is $950. It has a $1,000 par value, will mature in 14 years, and has a coupon interest rate of 8 percent annual interest, but makes its interest payments semiannually. What is the bond's yield to maturity? What happens to the bond's yield to maturity if the bond matures in 28 years? What if it matures in 7 years? (Round to two decimal places.)
The bond's yield to maturity if it matures in 14 years is
4.31
%
The bond's yield to maturity if it matures in 28 years is
4.23
%
The bond's yield to maturity if it matures in 7 years is
4.49
%
Question 5: (15 points). (Bond valuation relationships) Arizona Public Utilities issued a bond that pays $70 in interest, with a $1,000 par value and matures in 25 years. The markers required yield to maturity on a comparable-risk bond is 8 percent. (Round to the nearest cent.) For questions with two answer options (e.g. increase/decrease) choose the best answer and write it in the answer block.
Question
Answer
a. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond is 8 percent?
$ 893.252
b. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond increases to 11 percent?
$ 663.13
c. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond decreases to 7 percent?
$1000
d. The change in the value of a bond caused by ch ...
Page I 1 ( Compound value solvingor 11) How many year.docxalfred4lewis58146
Page I
1 ( Compound value solving/or 11) How many years will the following take?
a. $500 to grow to $1,419.71 if invested at 11 percent compounded annually
b. $38 to grow to $65. 1 3 if invested at 8 percent compounded annually
c. $ 120 to grow to $523.62 if invested at 12 percent compounded annually
d. $51 to grow to $62.05 if invested at 4 percent compounded annually
a. How many years wil l it take for $500 to grow to $1,419.71 if invested at 11 percent compounded annually?
_ years (Round to the nearest whole number.)
b. How many years will it take for $38 to grow to $65.13 if invested at 8 percent compounded annually?
_ years (Round to the nearest whole number.)
c. How many years will it take for $ 120 to grow to $523.62 i f invested at 12 percent compounded annually?
_ years (Round to the nearest whole number.)
d. How many years will it take for $51 to grow to $62.05 if invested at 4 percent compounded annually?
_ years (Round to the nearest whole number.)
2 . (Present value) What is the present value of the following future amounts?
a. $600 to be received 9 years from now discounted back to the present at 9 percent.
b. $200 to be received 7 years from now discounted back to the present at 7 percent.
c. $1,200 to be received 12 years from now discounted back to the present at 5 percent.
d. $1,200 to be received 5 years from now discounted back to the present at 17 percent.
a. What is the present value of $600 to be received 9 years from now cliscounted back to the present at 9 percent?
$_ (Rou nd to the nearest cent.)
b. What is the present value of $200 to be received 7 years from now discounted back to the present at 7 percent?
$_ (Round to the nearest cent.)
c. What is the present value of $1,200 to be received 12 years from now discounted back to the present at 5 percent ?
$_ (Roun d to the nearest cent.)
d. What is the present value of $1,200 to be received 5 years from now discounted back to the present at 17 percent?
$_ (Rou nd to the nearest cent.)
Page 3
3 . (Future value) Sarah Wiggum would like to make a single lump-sum investment and have $ 1.9 million at the time of her retirement in 26
years. She has found a mutual fund that expects to earn 4 percent annually. How much must Sarah invest today? If Sarah earned an annual
return of 15 percent, how much must she invest today?
a. IfSarah can earn 4 percent annually for the next 26 years; how much will she have to invest today?
$_ (Round to the nearest cent.)
b. If Sarah can earn 15 percent annually for the next 26 years, how much will she have to invest today?
$_ (Round to the nearest cent.)
4 . (Loan amortization ) Mr. Bill S. Preston, Esq., purchased a new house for $ 160,000. He paid $20,000 down and agreed to pay the rest over
the next 10 years in 10 equal end-of-year payments plus 7 percent compound interest on the unpaid balance. What will these equal
payments be?
The e.
BBA 3301 Unit V AssignmentInstructions Enter all answers direct.docxJASS44
BBA 3301 Unit V Assignment
Instructions: Enter all answers directly in this worksheet. When you are finished, select Save As, and save this document using your last name and student ID as the file name. Upload the data sheet to Blackboard as a .doc, .docx or .rtf file when you are finished.
Question 1. (30 points total) Use this balance sheet and income statement from Carver Enterprises to complete parts a and b:
a. (15 points) Prepare a common size balance sheet for Carver Enterprises. Complete the common-size balance sheet: (Round to one decimal place.)
Common−Size Balance Sheet
2013
Cash and marketable securities
$
490
%
Accounts receivable
5,990
Inventories
9,550
Current assets
$
16,030
%
Net property plant and equipment
17,030
Total assets
$
33,060
%
Accounts payable
$
7,220
%
Short−term debt
6,800
Current liabilities
$
14,020
%
Long−term liabilities
7,010
Total liabilities
$
21,030
%
Total owners’ equity
12,030
Total liabilities and owners’ equity
$
33,060
%
b. (15 points) Prepare a common-size income statement for Carver Enterprises. Complete the common-size income statement: (Round to one decimal place.)
Common−Size Income Statement
2013
Revenues
$
30,020
%
Cost of goods sold
(19,950)
Gross profit
$
10,070
%
Operating expenses
(7,960)
Net operating income
$
2,110
%
Interest expense
(940)
Earnings before taxes
$
1,170
%
Taxes
(425)
Net income
$
745
%
Question 2. (10 points total) Use this data table of Campbell Industries liabilities and owners' equity to complete parts a and b.
a. (5 points) What percentage of the firm's assets does the firm finance using debt (liabilities)? (Round to one decimal place.)
b. (5 points) If Campbell were to purchase a new warehouse for $1.3 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? (Round to one decimal place.)
Question 3. (10 points total) (Liquidity analysis)Airspot Motors, Inc. has $2,433,200 in current assets and $869,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.1 (assuming all other assets and current liabilities remain constant)? (Round to one decimal place.)
Question 4. (10 points total) (Efficiency analysis)Baryla Inc. manufactures high quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $93 million and a gross profit margin of 45 percent.
a. (5 points) How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 6.3 times? (Round to one decimal place.)
b. (5 points) Currently, some of Baryla's inventory includes $2.3 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least ...
briefly summarize how the Electoral College works. Explain some of t.docxjackiewalcutt
briefly summarize how the Electoral College works. Explain some of the main pros and cons in the debate about whether to keep or abolish the current Electoral College process. Also explain one proposal to change how the system works without formally abolishing it. Evaluate the various arguments and the proposal. Include at least two perspectives in your assessment:
Your judgment about the relevance of the Electoral College's underlying rationale to contemporary America.
Your judgment about its impact on presidential leadership capacity.
.
Briefly summarize and analyze two primary sources, identifying their.docxjackiewalcutt
Briefly summarize and analyze two primary sources, identifying their intended audience, purpose, context in which they were produced (what was happening at the time), and their overall historical significance (why it is important). Once you have analyzed the documents, discuss how they relate to each other. For example, do they reveal different perspectives or change over time?
The purpose of this is to go deep into a piece of material and engage with the historians’ craft of how to interpret pieces of the past. This is not a right/wrong type of paper. This is your interpretation based on what you know. The paper needs to have a strong thesis statement supported by quotes from the primary source with a conclusion that sums it up.
The paper should be 2 – 3 pages
PRIMARY SOURCES:
Hunter-Gatherer and Agricultural Societies
Hunting and Warfare - Cave Paintings
Çatal Hüyük City Plan
Code of Hammurabi
Greece
Herodotus: On the Kings of Sparta
Accounts of the Hellenic Games
Plato: The Republic
Rome
The Roman Way of Declaring War
The 12 Tables
Strabo: The Grandeur of Rome
Late Antiquity and the Emergence of Islam
Sidonius Apollinaris: A Civilized Barbarian and Barbarian Roman
The Prophet Muhammad's Last Sermon
The Qu'ran 1, 47
Feudalism
Pope Gregory the Great: Succession to Tenant Holdings on Church Land
Æthelwulf, King of Wessex: Grant of a Tenth of Public Land
Canute the Great: The Granting of Fiefs
The Crusades
Gregory VII: Call for a Crusade [First Crusade]
Eugene III: Summons for a Crusade [Second Crusade]
The Decline of Christian Power in the Holy Land
Richard the Lion-Hearted Conquers Cypress
The Middle Ages
Gregory of Tours: The Harsh Treatment of Serfs and Slaves
Geoffrey Chaucer, The Canterbury Tales: The Prologue to the Wife of Bath's Tale
The Renaissance and Discovery
Niccolo Machiavelli: The Prince [excerpts]
The Book of the Courtier [Excerpt]
The Life of Leonardo da Vinci
Christopher Columbus: Extracts from Journal
Sir Francis Drake's Famous Voyage Around the World
.
Briefly respond to the following questions. Use facts and examples t.docxjackiewalcutt
Briefly respond to the following questions. Use facts and examples to support your answers. Use APA style for any references.
1. When should the architect begin the analysis?
2. What are the activities the architect must execute?
3. What is the set of knowledge domains applied to the analysis?
4. What are the tips and tricks that make security architecture risk assessment easier?
.
More Related Content
Similar to 1. Nicks Enchiladas Incorporated has preferred stock outstand.docx
1. Susmel Inc. is considering a project that has the following cas.docxjackiewalcutt
1. Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback?
Year
0
1
2
3
Cash Flows
-$500
$150
$200
$300
a.
2.03 years
b.
2.25 years
c.
2.50 years
d.
2.75 years
e.
3.03 years
2. As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow?
Sales Revenues
$13,000
Depreciation
$4,000
Other operating costs
$6,000
Tax rate
35.0%
a.
$5,950
b.
$6,099
c.
$6,251
d.
$6,407
e.
$6,568
3. Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?
a.
$2.20
b.
$2.44
c.
$2.69
d.
$2.96
e.
$3.25
4. If a typical company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely
a.
become riskier over time, but its intrinsic value will be maximized
b.
become less risky over time, and this will maximize its intrinsic value
c.
accept too many low-risk projects and too few high-risk projects
d.
become more risky and also have an increasing WACC. Its intrinsic value will not be maximized
e.
continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital
5. Qualcomm Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now?
a.
$40.17
b.
$41.20
c.
$42.26
d.
$43.34
e.
$44.46
6. Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?
a.
$14.52
b.
$14.89
c.
$15.26
d.
$15.64
e.
$16.03
7. Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year
0
1
2
3
4
Cash Flows
-$950
$525
$485
$445
$405
a.
1.61 years
b.
1.79 years
c.
1.99 years
d.
2.22 years
e.
2.44 years
8. Bilulu Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost.
WACC: 8.75%
Year
0
1
2
3
4
CFS
-$1,100
$375
$375
$375
$375
CFL
-$2,200
$725
$725
$725
$725
a.
$32.12
b.
$35.33
c.
$38.87
d.
$40.15
e.
$42.16
9. Assume that Ki ...
Question 1. You can earn $40 in interest on a $1,000 deposit for.docxmakdul
Question 1.
You can earn $40 in interest on a $1,000 deposit for 8 months. If the EAR is the same regardless of the length of the investment, how much interest will you earn on a
$1,000 deposit for:
a. 2 months.
b. 1 year.
c. 1.5 years.
a. 2-months.
For a 2-month, $1,000 deposit you will earn
$. (Round to the nearest cent).
b. 1-year.
For a 1-year, $1,000 deposit you will earn
$. (Round to the nearest cent).
c. 1.5-years.
For a 1.5-year, $1,000 deposit you will earn
$. (Round to the nearest cent).
Question 2.
You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your current mortgage. The current monthly payment is $3,053 and you have made every payment on time. The original term of the mortgage was 30 years, and the mortgage is exactly four years and eight months old. You have just made your monthly payment. The mortgage interest rate is 5.798% (APR). How much do you owe on the mortgage today?
The amount you owe today is
$. (Round to the nearest dollar.)
Question 3.
Consider a project that requires an initial investment of $100,000 and will produce a single cash flow of
$150,000 in 5 years.
a. What is the NPV of this project if the 5-year interest rate is 5.0% (EAR)?
b. What is the NPV of this project if the 5-year interest rate is 10.0% (EAR)?
c. What is the highest 5-year interest rate such that this project is still profitable?
a. What is the NPV of this project if the 5-year interest rate is 5.0% (EAR)?
The NPV in this case (EAR equals 5.0 %) is $. (Round to the nearest dollar.)
b. What is the NPV of this project if the 5-year interest rate is 10.0% (EAR)?
The NPV in this case (EAR equals 10.0 %) is $. (Round to the nearest dollar.)
c. What is the highest 5-year interest rate such that this project is still profitable?
The highest EAR such that this project is still profitable is % (Round to two decimal places.)
Question 4.
In the summer of 2008, at Heathrow airport in London, Bestofthebest (BB), a private company, offered a lottery to win a Ferrari or 87,000 British pounds, equivalent at the time to about $174,000. Both the Ferrari and themoney, in 100 pound notes, were on display. If the U.K. interest rate was 4% per year, and the dollar interest rate was 2% per year (EARs), how much did it cost the company in dollars each month to keep the cash on display? That is, what was the opportunity cost of keeping it on display rather than in a bank account? (Ignore taxes.)Hint: Make sure to round all intermediate calculations to at least five decimal places.
The opportunity cost of keeping it on display rather than in a bank account is £ per month. (Round to two decimal places).
Question 5.
A 30-year bond with a face value of $1,000 has a coupon rate of 5.50%, with semiannual payments.
a. What is the coupon payment for this bond?
b. Enter the cash flows for the bond on a timeline
a. What is the coupon payment for this bond?
The coupon pay ...
Top of Form 1.Even though most corporate bonds in the .docxamit657720
Top of Form
1.
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7.4 percent paid annually.
If the yield to maturity is 8.5 percent, what is the current price of the bond?
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bond price
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7.4 percent paid annually.
If the yield to maturity is 8.5 percent, what is the current price of the bond?
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bond price
€
[removed]
2.
Assuming semiannual compounding, what is the price of a zero coupon bond with 19 years to maturity paying $1,000 at maturity if the YTM is
(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
:
Price of the Bond
a.
4 percent
b.
7 percent
c.
10 percent
References
Worksheet
Section: 8.1 Bonds and Bond Valuation
Assuming semiannual compounding, what is the price of a zero coupon bond with 19 years to maturity paying $1,000 at maturity if the YTM is
(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
:
Price of the Bond
a.
4 percent
$
[removed]
b.
7 percent
$
[removed]
c.
10 percent
$
[removed]
3.
A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 5.4 percent paid annually and matures in 16 years.
What is the yield to maturity of this bond?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Yield to maturity
%
References
Worksheet
Section: 8.1 Bonds and Bond Valuation
A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 5.4 percent paid annually and matures in 16 years.
What is the yield to maturity of this bond?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Yield to maturity
[removed]
%
4.
The next dividend payment by ECY, Inc., will be $1.76 per share. The dividends are anticipated to maintain a growth rate of 7 percent, forever. The stock currently sells for $34 per share.
What is the dividend yield?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Dividend yield
What is the expected capital gains yield?
(Do not round intermediate calculations and enter your answ ...
This is the fourth presentation for the University of New England Graduate School of Business unit, GSB711 - Managerial Finance. This presentation looks at returns on different types of investment.
Uop fin 486 week 2 individual assignment newBartholomee
fin 486 week 2 learning team assignment department budgets new,fin 486 week 2 team assignment new,fin 486 week 2 video summary new,uop fin 486,fin 486,uop fin 486 week 2 tutorial,fin 486 week 2 assignment,uop fin 486 week 2 help
09 Chapter modelChapter 9. Stocks and Their Valuation (Models)Thi.docxhoney725342
09 Chapter modelChapter 9. Stocks and Their Valuation (Models)This model is similar to the bond valuation models developed in Chapter 7 in that we employ discounted cash flow analysis to find the value of a firm's stock.THE DISCOUNTED DIVIDEND MODEL (Section 9-4)The value of any financial asset is equal to the present value of future cash flows provided by the asset. Stocks can be evaluated in two ways: (1) by finding the present value of the expected future dividends, or (2) by finding the present value of the firm's expected future free cash flows, subtracting the market value of the debt and preferred stock to find the total value of the common equity, and then dividing that total value by the number of shares outstanding to find the value per share. Both approaches are examined in this spreadsheet.When an investor buys a share of stock, he/she typically expects to receive cash in the form of dividends and then, eventually, to sell the stock and to receive cash from the sale. Moreover, the price any investor receives is dependent upon the dividends the next investor expects to earn, and so on for different generations of investors. The basic dividend valuation equation is:P0 =D1+D2+. . . .Dn( 1 + rs )( 1 + rs ) 2( 1 + rs ) nThe dividend stream theoretically extends on out forever, i.e., n = infinity. It would not be feasible to deal with an infinite stream of dividends, but if dividends are expected to grow at a constant rate, we can use the constant growth equation as developed in the text to find the value.CONSTANT GROWTH STOCKS (Section 9-5)In the constant growth model, we assume that the dividend will grow forever at a constant growth rate. This is a very strong assumption, but for stable, mature firms, it can be reasonable to assume that the firm will experience some ups and downs throughout its life but those ups and downs balance each other out and result in a long-term constant rate. In addition, we assume that the required return for the stock is a constant. With these assumptions, the price equation for a common stock simplifies to the following expression:P 0 =D 1( r s − g )The long-run growth rate (g) is especially difficult to measure, but one approximates this rate by multiplying the firm's return on equity by the fraction of earnings retained, ROE x
(1 – Payout ratio). Generally speaking, the long-run growth rate is likely to fall between 5% and 8%.EXAMPLEAllied Food Products just paid a dividend of $1.15, and the dividend is expected to grow at a constant rate of 8.3%. What stock price is consistent with these numbers, assuming a 13.7% required return?D0$2.15g8.3%rs13.7%P0 =D1=D0 (1+g)=$2.33( rs − g )( rs − g )0.054P0 =$43.12STOCK PRICE SENSITIVITYOne of the keys to understanding stock valuation is knowing how various factors affect the stock price. We construct below a series of data tables and a graph to show how the stock price is affected by changes in the dividend, the growth rate, and rs. R ...
1
Assignment 2 Winter 2022
Problem 1
Assume you have the option to buy one of three bonds. All have the same degree of default risk
and mature in 15 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has a 7 percent coupon rate and pays the $70 coupon once per year. The third has a 9
percent coupon rate and pays the $90 coupon once per year.
a. If all three bonds are now priced to yield 8 percent to maturity, what are their prices?
b. If you expect their yields to maturity to be 8 percent at the beginning of next year, what will
their prices be then? What is your before-tax holding period return on each bond? If your tax
bracket is 30 percent on ordinary income and 20 percent on capital gains income, what will
your after-tax rate of return be on each? Assume you do not sell the bonds.
c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on
each bond to be 7 percent at the beginning of next year.
d. Re-do the calculations in parts b and c above, assuming you will sell the bonds at the end of the
year.
Problem 2
A University endowment fund has sought your advice on its fixed-income portfolio strategy.
The characteristics of the portfolios current holdings are listed below:
Market
Credit Maturity Coupon Modified Value of
Bond Rating (yrs.) Rate (%) Duration Convexity Position
A Cnd. Govt. 3 0 2.727 9.9 $30,000
B A1 10 8 6.404 56.1 $30,000
C Aa2 5 12 3.704 18.7 $30,000
D Agency 7 10 4.868 32.1 $30,000
E Aa3 12 0 10.909 128.9 $30,000
$150,000
a) Calculate the modified duration for this portfolio.
b) Suppose you learn that the modified duration of the endowment’s liabilities is 6.5 years.
Identify whether the bond portfolio is: i) immunized against interest rate risk, ii) exposed to net
price risk, or iii) exposed to net re-investment risk. Briefly explain what will happen to the net
position of the endowment fund if in the future there is a significant parallel upward shift in the
yield curve.
c) Your current active view for the fixed income market over the coming months is that Treasury
yields will decline and corporate credit spreads will also decrease. Briefly discuss how you
could restructure the existing portfolio to take advantage of this view.
2
Problem 3
A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to
maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on
the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst
forecasts that 2 years from now, 18-year bonds will sell at yield to maturity of 8%, and that
coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of
7%.
a) What is the 2-year return on the bond
b) What will be the rate of return the manager forecasts that in 2 years the yiel ...
1
Assignment 2 Winter 2022
Problem 1
Assume you have the option to buy one of three bonds. All have the same degree of default risk
and mature in 15 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has a 7 percent coupon rate and pays the $70 coupon once per year. The third has a 9
percent coupon rate and pays the $90 coupon once per year.
a. If all three bonds are now priced to yield 8 percent to maturity, what are their prices?
b. If you expect their yields to maturity to be 8 percent at the beginning of next year, what will
their prices be then? What is your before-tax holding period return on each bond? If your tax
bracket is 30 percent on ordinary income and 20 percent on capital gains income, what will
your after-tax rate of return be on each? Assume you do not sell the bonds.
c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on
each bond to be 7 percent at the beginning of next year.
d. Re-do the calculations in parts b and c above, assuming you will sell the bonds at the end of the
year.
Problem 2
A University endowment fund has sought your advice on its fixed-income portfolio strategy.
The characteristics of the portfolios current holdings are listed below:
Market
Credit Maturity Coupon Modified Value of
Bond Rating (yrs.) Rate (%) Duration Convexity Position
A Cnd. Govt. 3 0 2.727 9.9 $30,000
B A1 10 8 6.404 56.1 $30,000
C Aa2 5 12 3.704 18.7 $30,000
D Agency 7 10 4.868 32.1 $30,000
E Aa3 12 0 10.909 128.9 $30,000
$150,000
a) Calculate the modified duration for this portfolio.
b) Suppose you learn that the modified duration of the endowment’s liabilities is 6.5 years.
Identify whether the bond portfolio is: i) immunized against interest rate risk, ii) exposed to net
price risk, or iii) exposed to net re-investment risk. Briefly explain what will happen to the net
position of the endowment fund if in the future there is a significant parallel upward shift in the
yield curve.
c) Your current active view for the fixed income market over the coming months is that Treasury
yields will decline and corporate credit spreads will also decrease. Briefly discuss how you
could restructure the existing portfolio to take advantage of this view.
2
Problem 3
A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to
maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on
the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst
forecasts that 2 years from now, 18-year bonds will sell at yield to maturity of 8%, and that
coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of
7%.
a) What is the 2-year return on the bond
b) What will be the rate of return the manager forecasts that in 2 years the yiel ...
Uop fin 486 week 2 individual assignment newmybrands1
fin 486 week 2 learning team assignment department budgets new,fin 486 week 2 team assignment new,fin 486 week 2 video summary new,uop fin 486,fin 486,uop fin 486 week 2 tutorial,fin 486 week 2 assignment,uop fin 486 week 2 help
Uop fin 486 week 2 individual assignment newvindaniel182
fin 486 week 2 learning team assignment department budgets new,fin 486 week 2 team assignment new,fin 486 week 2 video summary new,uop fin 486,fin 486,uop fin 486 week 2 tutorial,fin 486 week 2 assignment,uop fin 486 week 2 help
BBA 3310 Unit VI AssignmentInstructions Enter all answers.docxJASS44
BBA 3310 Unit VI Assignment
Instructions: Enter all answers directly in this worksheet. When finished select Save As, and save this document using your last name and student ID as the file name. Upload the data sheet to Blackboard as a .doc, .docx or .rtf file when you are finished.
Question 1: (10 points). (Bond valuation) Calculate the value of a bond that matures in 12 years and has $1,000 par value. The annual coupon interest rate is 9 percent and the market's required yield to maturity on a comparable-risk bond is 12 percent. Round to the nearest cent.
The value of the bond is
$814.17
Question 2: (10 points). (Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 11 percent. The interest is paid semiannually and the bonds mature in 9 years. Their par value is $1,000. If the market's required yield to maturity on a comparable-risk bond is 14 percent, what is the value of the bond? What is its value if the interest is paid annually and semiannually? (Round to the nearest cent.)
a. The value of the Enterprise bonds if the interest is paid semiannually is
$ 849.11
b. The value of the Enterprise bonds if the interest is paid annually is
$ 851.61
Question 3: (10 points). (Yield to maturity) The market price is $750 for a 20-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond's yield to maturity? (Round to two decimal places.)
The bond's yield to maturity is
6.20
%
Question 4: (10 points). (Yield to maturity) A bond's market price is $950. It has a $1,000 par value, will mature in 14 years, and has a coupon interest rate of 8 percent annual interest, but makes its interest payments semiannually. What is the bond's yield to maturity? What happens to the bond's yield to maturity if the bond matures in 28 years? What if it matures in 7 years? (Round to two decimal places.)
The bond's yield to maturity if it matures in 14 years is
4.31
%
The bond's yield to maturity if it matures in 28 years is
4.23
%
The bond's yield to maturity if it matures in 7 years is
4.49
%
Question 5: (15 points). (Bond valuation relationships) Arizona Public Utilities issued a bond that pays $70 in interest, with a $1,000 par value and matures in 25 years. The markers required yield to maturity on a comparable-risk bond is 8 percent. (Round to the nearest cent.) For questions with two answer options (e.g. increase/decrease) choose the best answer and write it in the answer block.
Question
Answer
a. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond is 8 percent?
$ 893.252
b. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond increases to 11 percent?
$ 663.13
c. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond decreases to 7 percent?
$1000
d. The change in the value of a bond caused by ch ...
Page I 1 ( Compound value solvingor 11) How many year.docxalfred4lewis58146
Page I
1 ( Compound value solving/or 11) How many years will the following take?
a. $500 to grow to $1,419.71 if invested at 11 percent compounded annually
b. $38 to grow to $65. 1 3 if invested at 8 percent compounded annually
c. $ 120 to grow to $523.62 if invested at 12 percent compounded annually
d. $51 to grow to $62.05 if invested at 4 percent compounded annually
a. How many years wil l it take for $500 to grow to $1,419.71 if invested at 11 percent compounded annually?
_ years (Round to the nearest whole number.)
b. How many years will it take for $38 to grow to $65.13 if invested at 8 percent compounded annually?
_ years (Round to the nearest whole number.)
c. How many years will it take for $ 120 to grow to $523.62 i f invested at 12 percent compounded annually?
_ years (Round to the nearest whole number.)
d. How many years will it take for $51 to grow to $62.05 if invested at 4 percent compounded annually?
_ years (Round to the nearest whole number.)
2 . (Present value) What is the present value of the following future amounts?
a. $600 to be received 9 years from now discounted back to the present at 9 percent.
b. $200 to be received 7 years from now discounted back to the present at 7 percent.
c. $1,200 to be received 12 years from now discounted back to the present at 5 percent.
d. $1,200 to be received 5 years from now discounted back to the present at 17 percent.
a. What is the present value of $600 to be received 9 years from now cliscounted back to the present at 9 percent?
$_ (Rou nd to the nearest cent.)
b. What is the present value of $200 to be received 7 years from now discounted back to the present at 7 percent?
$_ (Round to the nearest cent.)
c. What is the present value of $1,200 to be received 12 years from now discounted back to the present at 5 percent ?
$_ (Roun d to the nearest cent.)
d. What is the present value of $1,200 to be received 5 years from now discounted back to the present at 17 percent?
$_ (Rou nd to the nearest cent.)
Page 3
3 . (Future value) Sarah Wiggum would like to make a single lump-sum investment and have $ 1.9 million at the time of her retirement in 26
years. She has found a mutual fund that expects to earn 4 percent annually. How much must Sarah invest today? If Sarah earned an annual
return of 15 percent, how much must she invest today?
a. IfSarah can earn 4 percent annually for the next 26 years; how much will she have to invest today?
$_ (Round to the nearest cent.)
b. If Sarah can earn 15 percent annually for the next 26 years, how much will she have to invest today?
$_ (Round to the nearest cent.)
4 . (Loan amortization ) Mr. Bill S. Preston, Esq., purchased a new house for $ 160,000. He paid $20,000 down and agreed to pay the rest over
the next 10 years in 10 equal end-of-year payments plus 7 percent compound interest on the unpaid balance. What will these equal
payments be?
The e.
BBA 3301 Unit V AssignmentInstructions Enter all answers direct.docxJASS44
BBA 3301 Unit V Assignment
Instructions: Enter all answers directly in this worksheet. When you are finished, select Save As, and save this document using your last name and student ID as the file name. Upload the data sheet to Blackboard as a .doc, .docx or .rtf file when you are finished.
Question 1. (30 points total) Use this balance sheet and income statement from Carver Enterprises to complete parts a and b:
a. (15 points) Prepare a common size balance sheet for Carver Enterprises. Complete the common-size balance sheet: (Round to one decimal place.)
Common−Size Balance Sheet
2013
Cash and marketable securities
$
490
%
Accounts receivable
5,990
Inventories
9,550
Current assets
$
16,030
%
Net property plant and equipment
17,030
Total assets
$
33,060
%
Accounts payable
$
7,220
%
Short−term debt
6,800
Current liabilities
$
14,020
%
Long−term liabilities
7,010
Total liabilities
$
21,030
%
Total owners’ equity
12,030
Total liabilities and owners’ equity
$
33,060
%
b. (15 points) Prepare a common-size income statement for Carver Enterprises. Complete the common-size income statement: (Round to one decimal place.)
Common−Size Income Statement
2013
Revenues
$
30,020
%
Cost of goods sold
(19,950)
Gross profit
$
10,070
%
Operating expenses
(7,960)
Net operating income
$
2,110
%
Interest expense
(940)
Earnings before taxes
$
1,170
%
Taxes
(425)
Net income
$
745
%
Question 2. (10 points total) Use this data table of Campbell Industries liabilities and owners' equity to complete parts a and b.
a. (5 points) What percentage of the firm's assets does the firm finance using debt (liabilities)? (Round to one decimal place.)
b. (5 points) If Campbell were to purchase a new warehouse for $1.3 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? (Round to one decimal place.)
Question 3. (10 points total) (Liquidity analysis)Airspot Motors, Inc. has $2,433,200 in current assets and $869,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.1 (assuming all other assets and current liabilities remain constant)? (Round to one decimal place.)
Question 4. (10 points total) (Efficiency analysis)Baryla Inc. manufactures high quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $93 million and a gross profit margin of 45 percent.
a. (5 points) How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 6.3 times? (Round to one decimal place.)
b. (5 points) Currently, some of Baryla's inventory includes $2.3 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least ...
Similar to 1. Nicks Enchiladas Incorporated has preferred stock outstand.docx (19)
briefly summarize how the Electoral College works. Explain some of t.docxjackiewalcutt
briefly summarize how the Electoral College works. Explain some of the main pros and cons in the debate about whether to keep or abolish the current Electoral College process. Also explain one proposal to change how the system works without formally abolishing it. Evaluate the various arguments and the proposal. Include at least two perspectives in your assessment:
Your judgment about the relevance of the Electoral College's underlying rationale to contemporary America.
Your judgment about its impact on presidential leadership capacity.
.
Briefly summarize and analyze two primary sources, identifying their.docxjackiewalcutt
Briefly summarize and analyze two primary sources, identifying their intended audience, purpose, context in which they were produced (what was happening at the time), and their overall historical significance (why it is important). Once you have analyzed the documents, discuss how they relate to each other. For example, do they reveal different perspectives or change over time?
The purpose of this is to go deep into a piece of material and engage with the historians’ craft of how to interpret pieces of the past. This is not a right/wrong type of paper. This is your interpretation based on what you know. The paper needs to have a strong thesis statement supported by quotes from the primary source with a conclusion that sums it up.
The paper should be 2 – 3 pages
PRIMARY SOURCES:
Hunter-Gatherer and Agricultural Societies
Hunting and Warfare - Cave Paintings
Çatal Hüyük City Plan
Code of Hammurabi
Greece
Herodotus: On the Kings of Sparta
Accounts of the Hellenic Games
Plato: The Republic
Rome
The Roman Way of Declaring War
The 12 Tables
Strabo: The Grandeur of Rome
Late Antiquity and the Emergence of Islam
Sidonius Apollinaris: A Civilized Barbarian and Barbarian Roman
The Prophet Muhammad's Last Sermon
The Qu'ran 1, 47
Feudalism
Pope Gregory the Great: Succession to Tenant Holdings on Church Land
Æthelwulf, King of Wessex: Grant of a Tenth of Public Land
Canute the Great: The Granting of Fiefs
The Crusades
Gregory VII: Call for a Crusade [First Crusade]
Eugene III: Summons for a Crusade [Second Crusade]
The Decline of Christian Power in the Holy Land
Richard the Lion-Hearted Conquers Cypress
The Middle Ages
Gregory of Tours: The Harsh Treatment of Serfs and Slaves
Geoffrey Chaucer, The Canterbury Tales: The Prologue to the Wife of Bath's Tale
The Renaissance and Discovery
Niccolo Machiavelli: The Prince [excerpts]
The Book of the Courtier [Excerpt]
The Life of Leonardo da Vinci
Christopher Columbus: Extracts from Journal
Sir Francis Drake's Famous Voyage Around the World
.
Briefly respond to the following questions. Use facts and examples t.docxjackiewalcutt
Briefly respond to the following questions. Use facts and examples to support your answers. Use APA style for any references.
1. When should the architect begin the analysis?
2. What are the activities the architect must execute?
3. What is the set of knowledge domains applied to the analysis?
4. What are the tips and tricks that make security architecture risk assessment easier?
.
Briefly in your own words describe the distinction between explicit .docxjackiewalcutt
Briefly in your own words describe the distinction between explicit knowledge and implicit (tacit) knowledge. Next describe the knowledge network cycle that transforms individual knowledge into organizational knowledge. Be sure to identify any key transformations within your response.
Discuss two (2) fundamental challenges of data storage and information sharing associated with a company’s knowledge management system. Next hypothesize how one would overcome the problem of “not knowing what you know.” Provide support for your response.
.
Briefly explain Victoria Australia Covid19 update and impact.docxjackiewalcutt
Briefly explain
Victoria Australia Covid19 update and impact on business in general and the impact on Real Estate
in an email and also rephrase and make the below content which i have written to sound more negative. It is a letter to owner.
.
Briefly introduce the détente policies of the early 1970s, and des.docxjackiewalcutt
Briefly introduce the détente policies of the early 1970s, and describe how they positively or negatively impacted Western politics and society.
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.
Levack, B., Muir, E., & Veldman, M., (2011).
The West: Vol. 2. Encounters & transformations: Since 1550
(3
rd
ed., pp. 928-934). Upper Saddle River, NJ: Pearson Education, Inc.
No Wiki, Dictionary.com or Plagiarism
.
Briefly explain the role of information systems in an organization.docxjackiewalcutt
Briefly explain the role of information systems in an organization.
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.
Kroenke, D. (2013). The Importance of MIS.
Using MIS
(pp. 8-10, 11-13). Upper Saddle River: Pearson Learning
Solution
s. (Original work published 2007)
.
briefly describe, in 2-3 pages, the problemissue and the proble.docxjackiewalcutt
briefly describe, in 2-3 pages, the problem/issue and the problem statement you developed.
Identify the major contributors to the problem (who, what) and briefly explain how they contribute to/cause the problem.
Explain at least two causes of the problem.
Explain at least two effects of the problem.
.
Briefly explain the mission of the OSH Act. What is the rationale be.docxjackiewalcutt
Briefly explain the mission of the OSH Act. What is the rationale behind the Act?
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.
.
Briefly discuss the various organizational approaches to managing .docxjackiewalcutt
Briefly discuss the various organizational approaches to managing ethics within an IS?
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.
Kroenke, D. (2013
). The Importance of MIS. Using MIS
(pp. 394-395, 426-427). Upper Saddle River: Pearson Learning
Solution
s.
No Wiki, Dictionary.com or Plagiarism
.
Briefly explain the identified security issues during Risk Assessmen.docxjackiewalcutt
Briefly explain the identified security issues during Risk Assessment.
Executive summary on Risk treatment and Risk control.
Provide a mitigation policy and plans with the intent of successfully treating the risks that were discovered during risk assessment.
Provide a risk monitoring and risk reviewing plan under risk control
.
Briefly discuss some KSAs for Fighting Cybercrime and submit in a wo.docxjackiewalcutt
Briefly discuss some KSAs for Fighting Cybercrime and submit in a word document.
· Be careful. Make sure to avoid plagiarism and to use quotation marks and proper citation as required.
· Use APA format for citations and the required References page. Remember that the significant portion of your analysis should be in your own words (avoid using blogs or Wikipedia).
.
Briefly describe what a monopoly is and give an example using the ch.docxjackiewalcutt
Briefly describe what a monopoly is and give an example using the characteristics of monopoly. State what are the barriers for entry that market. How does the monopoly maximises profit and what is the role of the government? Analyse and evaluate an example of natural monopoly in Oman.
.
Briefly describe the spread of industry throughout Europe and into.docxjackiewalcutt
Briefly describe the spread of industry throughout Europe and into America.
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.
Levack, B. P., Muir, E., & Veldman, M. (2011). 18.
The West: encounters & transformations
(3rd ed., pp.). Boston: Longman.
No Wiki, Dictionary.com or Plagiarism
.
Briefly describe the path of food through the digestive system and e.docxjackiewalcutt
Briefly describe the path of food through the digestive system and explain each organ’s role in the digestive process. Research two digestive dysfunctions that can occur and discuss how each of them could impact a person’s health.
*This question is a minimum of 200 words and at least one cited source. It is due by Midnight December the 28th.*
.
Briefly describe the different parenting styles discussed in this we.docxjackiewalcutt
Briefly describe the different parenting styles discussed in this week’s readings. How could they impact a child’s cognitive and social development? Select two parental characters in TV or movie media (e.g., movies, situation comedies, TV dramas) and identify the styles that the characters who are acting in the roles of the parents are applying to the characters who are acting in the roles of children. Each of your characters should demonstrate a different parenting style—do not discuss two characters demonstrating the same style. What do the readings say about the effects of these parenting styles on cognitive and social development? In what ways are the behaviors of the children consistent with the information in the readings and in what ways are the children’s behaviors different?
.
Briefly describe how the BIOS boots or starts the computer and.docxjackiewalcutt
Briefly describe how the BIOS boots or starts the computer and the operating system.
Describe utilities that are on your Windows OS under System Information, Task Manager, and Resource Monitor.
Provide a screenshot of the Performance and Overview tabs of your computer.
(If you feel that a screenshot shows too much personal information, you can choose another tab or decline this part of the assignment.)
.
Briefly describe how to deploy a Continuous Improvement effort.W.docxjackiewalcutt
Briefly describe how to deploy a Continuous Improvement effort.
What Continuous Improvement Is (and How to Use It)
Ben Mulholland
April 6, 2018
Business Processes, Processes, Productivity
No process is perfect; there’s always room to improve. Unfortunately, many teams have no way to identify, test, and deploy the changes they make, meaning each tweak is a roll of the dice.
The savings can be massive, but you need a continuous improvement program to make sure that the changes you make won’t make your operations a whole lot harder.
“1 in 10 improvements save money… [each saving, on average,] $31,043 in its first year of implementation.
1 in 4 improvements save time… [each saving, on average,] 270 hours in its first year of implementation.” – KaiNexus, The ROI of Continuous Improvement
Most successful changes will also make your employee’s jobs easier (or more pleasant) to perform. You’ll be saving time and money, but you’ll also be getting far better value out of your current efforts and operations.
However, I’m getting ahead of myself. Let’s start from the top.What is continuous improvement?
Ever corrected a spelling mistake in your processes or manuals? How about adding a new step to qualify a task that wasn’t recorded before? What about updating your method to take advantage of better tools or software?
All of these and more are examples of continuous improvement.
Continuous improvement is a method to make sure that your processes, methods, and practices are as efficient, accurate, and effective as possible. This is done (surprise, surprise) by periodically examining and improving your processes to smash bottlenecks, use the best software, and take advantage of the most efficient methods.
If you’ve ever heard of lean, kaizen, Six Sigma, or DMAIC then this will sound familiar, as continuous improvement is based on similar principles and forms a key part of both of those practices. This is because the primary objective of any changes is to reduce waste and streamline your work.
While there are many different methods for achieving continuous improvement (such as process innovation and the Deming cycle), all can be classified into one of two groups; incremental or breakthrough improvements.
Incremental vs breakthrough improvements
Continuous improvement is largely practiced using two disciplines; incremental and breakthrough improvements. These can be used interchangeably, but the best way to deploy a thorough continuous improvement program is to combine the two. By doing this you can quickly deal with smaller issues while giving larger items the care and attention they deserve.Incremental continuous improvement
Incremental continuous improvement is all about making small tweaks to a process, method, or practice to improve it as problems are found. This usually costs less and can be done much faster than using the breakthrough method, but there are a few risks and downsides to doing so.
Imagine that you’re working through a regular document.
briefly define democracy and evaluate in detail THREE of.docxjackiewalcutt
briefly define
democracy
and evaluate in detail
THREE
of the items from the list below that you feel has the greatest impact on advancing democracy in the United States. (Provide examples to support your answer)
¨ Bill of Rights
¨ 1st Amendment rights
¨ Civil War Amendments
¨ Gender Equality
¨ Right of Privacy
¨ Three branches of government
¨ Civil rights cases
¨ Civil liberties cases
¨ Political parties
¨ 14th Amendment due process protections
¨ Interest groups
From the list above, select
ONE
item that you feel has hindered the advancement of democracy? Provide examples to support your response. In your conclusion, considering your answer to the first question, explain your role in ensuring an effective democracy? Elaborate your response by describing three things you plan to do to ensure democracy.
.
Briefly define, listcontrast, identify the significance of, or .docxjackiewalcutt
Briefly define, list/contrast, identify the significance of, or describe the following items.
Use two (2) different sources to answer the following business terms.
Use your
BUSN 11
textbook
and one other
Internet source
as needed.
Form Attached
.
This is a presentation by Dada Robert in a Your Skill Boost masterclass organised by the Excellence Foundation for South Sudan (EFSS) on Saturday, the 25th and Sunday, the 26th of May 2024.
He discussed the concept of quality improvement, emphasizing its applicability to various aspects of life, including personal, project, and program improvements. He defined quality as doing the right thing at the right time in the right way to achieve the best possible results and discussed the concept of the "gap" between what we know and what we do, and how this gap represents the areas we need to improve. He explained the scientific approach to quality improvement, which involves systematic performance analysis, testing and learning, and implementing change ideas. He also highlighted the importance of client focus and a team approach to quality improvement.
Palestine last event orientationfvgnh .pptxRaedMohamed3
An EFL lesson about the current events in Palestine. It is intended to be for intermediate students who wish to increase their listening skills through a short lesson in power point.
Model Attribute Check Company Auto PropertyCeline George
In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
Unit 8 - Information and Communication Technology (Paper I).pdfThiyagu K
This slides describes the basic concepts of ICT, basics of Email, Emerging Technology and Digital Initiatives in Education. This presentations aligns with the UGC Paper I syllabus.
The Art Pastor's Guide to Sabbath | Steve ThomasonSteve Thomason
What is the purpose of the Sabbath Law in the Torah. It is interesting to compare how the context of the law shifts from Exodus to Deuteronomy. Who gets to rest, and why?
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
How to Create Map Views in the Odoo 17 ERPCeline George
The map views are useful for providing a geographical representation of data. They allow users to visualize and analyze the data in a more intuitive manner.
1. Nicks Enchiladas Incorporated has preferred stock outstand.docx
1. 1. Nick's Enchiladas Incorporated has preferred stock
outstanding that pays a dividend of $5 at
the end of each year. The preferred stock sells for $35 a share.
What is the stock's required rate of
return? Round the answer to two decimal places.
%
2. A stock is expected to pay a year-end dividend of $2.00, i.e.,
D1 = $2.00. The dividend is
expected to decline at a rate of 5% a year forever (g = −5%). If
the company is in equilibrium and
its expected and required rate of return is 15%, which of the
following statements is CORRECT?
a. The company's dividend yield 5 years from now is expected
to be 10%.
b. The company's current stock price is $20.
c. The company's expected capital gains yield is 5%.
d. The constant growth model cannot be used because the
growth rate is negative.
e. The company's expected stock price at the beginning of next
year is $9.50.
2. 3. The expected return on Natter Corporation's stock is 14%.
The stock's dividend is expected to
grow at a constant rate of 8%, and it currently sells for $50 a
share. Which of the following
statements is CORRECT?
a. The stock's dividend yield is 7%.
b. The current dividend per share is $4.00.
c. The stock's dividend yield is 8%.
d. The stock price is expected to be $54 a share one year from
now.
e. The stock price is expected to be $57 a share one year from
now.
4. Investors require a 16% rate of return on Brooks Sisters'
stock (rs = 16%).
a. What would the value of Brooks's stock be if the previous
dividend was D0 = $2.75 and if
investors expect dividends to grow at a constant compound
annual rate of (1) - 4%, (2)
0%, (3) 7%, or (4) 10%? Round your answers to the nearest
cent.
1. $
2. $
3. 3. $
4. $
b. Using data from part a, what is the Gordon (constant growth)
model's value for Brooks
Sisters's stock if the required rate of return is 16% and the
expected growth rate is (1)
16% or (2) 24%? Are these reasonable results? Explain.
1. (Yes or No)
2. (Yes or No)
c. Is it reasonable to expect that a constant growth stock would
have g > rs? ( Yes or No)
5. Brushy Mountain Mining Company's ore reserves are being
depleted, so its sales are falling.
Also, its pit is getting deeper each year, so its costs are rising.
As a result, the company's earnings
and dividends are declining at the constant rate of 6% per year.
If D0 = $3 and rs = 13%, what is
the value of Brushy Mountain Mining's stock? Round your
answer to the nearest cent.
$
6. Boehm Incorporated is expected to pay a $3.70 per share
dividend at the end of this year (i.e.,
D1 = $3.70). The dividend is expected to grow at a constant rate
of 10% a year. The required rate
of return on the stock, rs, is 18%. What is the value per share of
4. the company's stock? Round your
answer to the nearest cent.
$
7. A company currently pays a dividend of $1.5 per share, D0 =
1.5. It is estimated that the
company's dividend will grow at a rate of 19% percent per year
for the next 2 years, then the
dividend will grow at a constant rate of 6% thereafter. The
company's stock has a beta equal to
1.15, the risk-free rate is 7.5 percent, and the market risk
premium is 3 percent. What is your
estimate is the stock's current price? Round your answer to the
nearest cent.
$
8. The beta coefficient for Stock C is bC = 0.3, and that for
Stock D is bD = - 0.4. (Stock D's beta
is negative, indicating that its rate of return rises whenever
returns on most other stocks fall.
There are very few negative-beta stocks, although collection
agency and gold mining stocks are
sometimes cited as examples.)
a. If the risk-free rate is 7%and the expected rate of return on an
average stock is 12%, what
are the required rates of return on Stocks C and D? Round the
answers to two decimal
places.
1. rC = %
2. rD = %
b. For Stock C, suppose the current price, P0, is $25; the next
expected dividend, D1, is
$1.50; and the stock's expected constant growth rate is 4%. Is
5. the stock in equilibrium?
Explain, and describe what would happen if the stock is not in
equilibrium. (Choose
from the answers below: I, II, III, IV, or V)
I. In this situation, the expected rate of return = 8.50%.
However, the required rate of return is
10%. Investors will seek to buy the stock, raising its price to
$33.33. At this price, the stock will
be in equilibrium.
II. In this situation, the expected rate of return = 10%.
However, the required rate of return is
8.50%. Investors will seek to buy the stock, raising its price to
$33.33. At this price, the stock will
be in equilibrium.
III. In this situation, the expected rate of return = 10%.
However, the required rate of return is
8.50%. Investors will seek to sell the stock, raising its price to
$33.33. At this price, the stock will
be in equilibrium.
IV. In this situation, the expected rate of return = 8.50%.
However, the required rate of return is
10%. Investors will seek to sell the stock, raising its price to
$33.33. At this price, the stock will
be in equilibrium.
V. In this situation, both the expected rate of return and the
required rate of return are equal.
Therefore, the stock is in equilibrium at its current price.
6. 9. The risk-free rate of return, rRF , is 12%; the required rate of
return on the market, rM, 15%; and
Schuler Company's stock has a beta coefficient of 1.5.
a. If the dividend expected during the coming year, D1, is
$2.25, and if g is a constant
2.25%, then at what price should Schuler's stock sell? Round
your answer to the nearest
cent.
$
b. Now, suppose the Federal Reserve Board increases the money
supply, causing a fall in
the risk-free rate to 6% and rM to 13%. How would this affect
the price of the stock?
Round your answer to the nearest cent.
$
c. In addition to the change in part b, suppose investors' risk
aversion declines; this fact,
combined with the decline in rRF, causes rM to fall to 9%. At
what price would Schuler's
stock sell? Round your answer to the nearest cent.
$
d. Suppose Schuler has a change in management. The new group
institutes policies that
increase the expected constant growth rate to 7%. Also, the new
management stabilizes
sales and profits, and thus causes the beta coefficient to decline
from 1.5 to 1.0. Assume
that rRF and rM are equal to the values in part c. After all these
changes, what is Schuler's
new equilibrium price? (Note: D1 goes to $2.35.) Round your
answer to the nearest cent.
$
7. 10.
A share of common stock just paid a dividend of $1.00. If the
expected long-run growth rate
for this stock is 5.4%, and if investors' required rate of return is
11.4%, what is the stock price?
a. $18.01
b. $17.57
c. $16.28
d. $16.70
e. $17.13
Forum Topic Responses: One comprehensive forum topic
response is assigned weekly. Students are required to select and
research one of the forum topics listed below using a minimum
of 3 reference sources in addition to the textbook and then write
a 1,000-word or more response to the forum topic. APA format
is required. Also submit your forum topic response to Turnitin.
Comprehensive forum topic response contributions will be
critically graded on the thought quality of the response, work
effort, research, APA format, and analysis.
REMEMBER TO:
Use APA format - title page, running head, citations (MUST
8. HAVE), references
Do not plagiarize. Quote, paraphrase or summarize the data that
you take from a source. Include a citation. Plagiarism will result
in a serious loss of points.
Make sure your paper (the text) is 1,000 words or more.
Do not use Wikipedia or Investopedia or any ~pedia sources.
The text may be used but will not count toward the required 3
sources.
Select one of the following forum topics to research and write
about.
Forum Topics – Chapter 8:Financial Options and Applications
in Corporate Finance (Choose 1 topic from the list below)
-Stock Options (Puts, Call, Spreads, etc.)
-Employee Stock Options
-Stock Option Valuation
-Stock Option Pricing Models
Ch07 P20 Build a Model Spring 1, 20137/22/12Chapter 7. Ch
07 P20 Build a ModelExcept for charts and answers that must
be written, only Excel formulas that use cell references or
functions will be accepted for credit. Numeric answers in cells
will not be accepted.Rework Problem 7-19. Taussig
Technologies Corporation (TTC) has been growing at a rate of
20% per year in recent years. This same growth rate is expected
to last for another 2 years (g1 = g2 = 20%).a. If D0 = $1.60, rs
= 10%, and gn = 5%, what is TTC's stock worth today? What
are its expected dividend yield and capital gains yield at this
time?1. Find the price today.D0$1.60rs10.0%gs20%Short-run
g; for Years 1-2 only.gL5%Long-run g; for Year 3 and all
following years.20%5%Year0123DividendPV of dividends=
D3= Terminal value = P2 == rs – gL = P0 2. Find the
expected dividend yield.Recall that the expected dividend yield
is equal to the next expected annual dividend divided by the
9. price at the beginning of the period.Dividend yield
=D1/P0Dividend yield =/Dividend yield =3. Find the expected
capital gains yield.The capital gains yield can be calculated by
simply subtracting the dividend yield from the total expected
return.Cap. Gain yield=Expected return–Dividend yieldCap.
Gain yield=–Cap. Gain yield=Alternatively, we can recognize
that the capital gains yield measures capital appreciation, hence
solve for the price in one year, then divide the change in price
from today to one year from now by the current price. To find
the price one year from now, we will have to find the present
values of the terminal value and second year dividend to time
period one.P1=P2+D2(1 + rs)P1=+P1=Cap. Gain yield=(P1 –
P0)/P0Cap. Gain yield=/Cap. Gain yield=b. Now assume that
TTC's period of supernormal growth is to last for 5 years rather
than 2 years. How would this affect its price, dividend yield,
and capital gains yield?1. Find the price
today.D0$1.60rs10.0%gS20%Short-run g; for Years 1-5
only.gL6%Long-run g; for Year 6 and all following
years.20%6%Year0123456DividendPV of dividends= D6
Kenneth D. Jackson: Discounted 5 years
Kenneth D. Jackson: Discounted two years
Horizon value = P5 == = P0= rs – gLPart 2. Finding the
expected dividend yield.Dividend yield =D1/P0Dividend yield
=/Dividend yield =Part 3. Finding the expected capital gains
yield.Cap. Gain yield=Expected return–Dividend yieldCap. Gain
yield=–Cap. Gain yield=c. What will TTC's dividend yield and
capital gains yield be once its period of supernormal growth
ends? (Hint: These values will be the same regardless of
whether you examine the case of 2 or 5 years of supernormal
growth, and the calculations are very easy.)We used the 5-year
supernormal growth scenario for this calculation, but ultimately
it does not matter which example you use, as they both yield the
same result.Dividend yield =Dn+1/PnDividend yield =/Dividend
10. yield =Cap. Gain yield=Expected return–Dividend yieldCap.
Gain yield=–Cap. Gain yield=Upon reflection, we see that these
calculations were unnecessary because the constant growth
assumption holds that the long-term growth rate is the dividend
growth rate and the capital gains yield, hence we could have
simply subtracted the long-run growth rate from the required
return to find the dividend yield.
Sheet27/22/12
Chapter4/11/10Chapter 7 Tool Kit for Stock Valuation
VALUING COMMON STOCKS (Section 7.5)Stocks can be
evaluated in two ways: (1) find the stock price directly by
calculating the present value of the expected future dividends,
or (2) find the stock price indirectly by first calculating the
value of the entire corporation, which is the the present value of
the firm's expected future free cash flows, and then subtracting
the value of the debt and preferred stock to find the total value
of the common equity. Only the first approach (the dividend
model) is discussed in this chapter. The second approach (the
corporate valuation model) is described in Chapter 13.THE
DISCOUNTED DIVIDEND APPROACHThe value of any
financial asset is the present value of the future cash flows
provided by the asset. When an investor buys a share of stock,
he or she typically expects to receive cash in the form of
dividends and then, eventually, to sell the stock and to receive
cash from the sale. However, the price the first investor
receives is dependent upon the dividends the next investor
expects to earn, and so on for different generations of investors.
Thus, the stock's value ultimately depends on the cash dividends
the company is expected to provide and the discount rate used
to find the present value of those dividends.Here is the basic
dividend valuation equation:P0 =D1+D2+. . . .DN( 1 + rs )( 1
+ rs ) 2( 1 + rs ) NThe dividend stream theoretically extends on
out forever, i.e., to n = infinity. Obviously, it would not be
feasible to deal with an infinite stream of dividends, but
fortunately, a relatively simple equation has been developed
11. that can be used to find the PV of the dividend stream, provided
it is growing at a constant rate.VALUING A CONSTANT
GROWTH STOCK (Section 7.6)In the constant growth model,
we assume that the dividend and stock will grow forever at a
constant growth rate. Naturally, assuming a constant growth
rate for the rest of eternity is a rather bold assumption.
However, considering the implications of imperfect information,
information asymmetry, and general uncertainty, the assumption
of constant growth is often reasonable. It is reasonable to guess
that a given stock will experience ups and downs throughout its
life. By assuming constant growth, we are trying to find the
average of the good times and the bad times, and we assume
that we will see both scenarios over the firm's life. In addition
to a constant growth rate, we also need the estimated long-term
required return for the stock, and it too must be constant. If
these variables are constant, our price equation for common
stock simplifies to the following expression:P0 =D1( rs – g )In
this equation, the long-run growth rate (g) can be approximated
by multiplying the firm's return on assets by the retention ratio.
Generally speaking, the long-run growth rate of a firm is likely
to fall between 5% and 8% a year.EXAMPLE: CONSTANT
GROWTHA firm just paid a $1.15 dividend and its dividend is
expected to grow at a constant rate of 8%. What is its stock
price, assuming it has a required return of 13.4%?D0 =$1.15g
=8%rs =13.4%P0 =D1=D0 (1 + g)=$1.2420( rs – g )( rs – g
)0.0540P0 =$23.00How sensitive is the stock's price to changes
in the dividend, the growth rate, and rs? We can construct a
series of data tables and a graph to examine this
question.Resulting % ChangeLastPricein D0Dividend,
D0$23.00-30%$0.81$16.10-
15%$0.98$19.550%$1.15$23.0015%$1.32$26.4530%$1.50$29.9
0% ChangeReq'd Return$23.00-30%9.38%$90.00-
15%11.39%$36.640%13.40%$23.0015%15.41%$16.7630%17.42
%$13.18% ChangeGrowth Rate$23.00-30%5.60%$15.57-
15%6.80%$18.610%8.00%$23.0015%9.20%$29.9030%10.40%$
42.32This chart shows that the stock price has a positive
12. relationship with the dividend and the growth rate, and a
negative relationship with the required return. Furthermore, we
see that the dividend has a linear relationship with price, while
the growth rate seems to have a quadratic relationship. The
relationship between required return and stock price is not only
negative, but it is a quadratic relationship with greater
convexity than the growth rate. This indicates that the required
return is the factor that more directly influences the stock price.
In other words, required return is the value driver in this
valuation technique. However, the final effects also depend on
the amount of change in each of the three variables. If the
required return and dividend are expected to be stable, but the
dividend growth rate is expected to change significantly, then
the growth rate will be the primary determinant of the stock
price.DO STOCK PRICES REFLECT LONG-TERM OR
SHORT-TERM CASH FLOWS?Managers often claim that stock
prices are "short-term" in nature in the sense that they reflect
what is happening in the near-term and ignore the long-term.
We can use the results for the constant growth model to shed
light on this claim.The first step is to forecast the dividends for
the next 5 years. Then we find the present value of these
dividends and compare that PV with the current stock price,
which reflects the PV of all future dividends.P0 =$23.00D0
=$1.15g =8%rs
=13.4%Year012345Dividend$1.15$1.24$1.34$1.45$1.56$1.69P
V of dividends in Years 1 through 5 =$4.98Current stock price
=$23.00Percent of current stock price due to
dividends in Years 1 through 5 =21.6%Percent of current stock
price due to
dividends beyond Year 5 =78.4%For most stock, the percentage
of the current price that is due to long-term cash flows is over
80%.EXPECTED RATE OF RETURN ON A CONSTANT
GROWTH STOCK (Section 7.7)Using the constant growth
equation introduced earlier, we can re-work the equation to
solve for rs. In doing so, we are now solving for an expected
return. The expression we are left is:rs =D1+gP0This
13. expression tells us that the expected return on a stock comprises
two components. First, it consists of the expected dividend
yield, which is simply the next expected dividend divided by the
current price. The second component of the expected return is
the expected capital gains yield. The expected capital gains
yield is the expected annual price appreciation of the stock, and
is given by g. This shows us the dual role of g in the constant
growth rate model. Not only does g indicate expected dividend
growth, but it is also the expected stock price growth
rate.EXAMPLE: EXPECTED RATE OF RETURN ON A
CONSTANT GROWTH STOCKYou buy a stock for $23, and
you expect the next annual dividend to be $1.242. Furthermore,
you expect the dividend to grow at a constant rate of 8%. What
is the expected rate of return on the stock, and what is the
dividend yield of the stock?P0
$23.00D1$1.242g8%rs13.40%Dividend Yield + Capital Gains
Yield = Expected Rate of ReturnDividend yield5.40%
5.40% + 8% = 13.40%EXAMPLE: EXPECTED PRICE IN THE
FUTUREWhat is the expected price of this stock in five
years?N =5Using the growth rate we find that:P5
=$33.79=B152*(1+B154)^B163VALUING NONCONSTANT
GROWTH STOCKS (Section 7.8)For many companies, it is
unreasonable to assume that they grow at a constant growth
rate. Hence, valuation for these companies proves a little more
complicated. The valuation process, in this case, requires us to
estimate the short-run nonconstant growth rate and predict
future dividends. Then, we must estimate a constant long-term
growth rate at which the firm is expected to grow. Generally,
we assume that after a certain point of time, all firms begin to
grow at a rather constant rate. Of course, the difficulty in this
framework is estimating the short-term growth rate, how long
the short-term growth will hold, and the long-term growth
rate.Specifically, we will predict as many future dividends as
we can and discount them back to the present. Then we will
treat all dividends to be received after the convention of
constant growth rate with the Gordon constant growth model
14. described above. The point in time when the dividend begins to
grow constantly is called the horizon date. When we calculate
the constant growth dividends, we solve for a terminal value (or
a continuing value) as of the horizon date. The terminal value
can be summarized as:TVN =PN =DN+1=DN (1 + g)( rs –
g )( rs – g )This condition holds true, where N is the terminal
date. The terminal value can be described as the expected value
of the firm in the time period corresponding to the horizon
date.EXAMPLE: NONCONSTANT GROWTHA company's
stock just paid a $1.15 dividend, which is expected to grow at
30% for the next three years. After three years the dividend is
expected to grow constantly at 8% forever. The stock's required
return is 13.4%, what is the price of the stock today?D0
=$1.15rs =13.4%gs =30%Short-run g; for Years 1-3 only.gL
=8%Long-run gL; for all years after Year 3.Growth
rate30%30%30%8%8%Year01234Dividends$1.15$1.4950$1.943
5$2.5266$2.7287PV of dividends discounted at
rs$1.31831.51131.7326$2.7287$4.5622 = PV of nonconstant
dividends$50.5310= Horizon value =──────$34.6512 = PV
of horizon value5.4%$39.2135 = P0rs – gLPREFERRED
STOCK (Section 7.11)Consider an issue of preferred stock that
pays a $10 dividend and has a required return of 10%. What is
the price of this preferred stock?Vps =Dps÷rps
=$10.00÷10.00% =$100.00Some preferred stock has a
maturity date. Consider a firm whose preferred stock matures
in 50 years, pays a $10 annual dividend, has a par value of
$100, and has a required return of 8%. What is the price of this
preferred stock?Years to Maturity (N):50Annual Dividend
(PMT):$10Par value (FV):$100Required return, rd
(I/YR):8%Vps =$124.47STOCK MARKET EQUILIBRIUM
(Section 7.12)Changes in Equilibrium Stock PricesSmall
changes in the market's expectations can cause large changes in
stock price!OriginalNewRisk-free rate, rRF8%7%Market risk
premium, rM – rRF4%3%Stock i’s beta coefficient,
bi21ri16.00%10.00%Stock i’s expected growth rate,
gi5%6%D0$2.8571$2.8571Price of Stock i$27.27$75.71
22. Changes in Dividends, Req's Return, and Growth: Effect on
Stock Price
Dividend -0.3 -0.15 0.0 0.15 0.3 16.1 19.55 23
26.45 29.9 Req's Return -0.3 -0.15 0.0 0.15
0.3 90.00000000000004 36.63716814159292 23
16.76113360323887 13.18471337579617 Growth -0.3 -
0.15 0.0 0.15 0.3 15.56923076923077 18.60909090909091 23
29.89999999999999 42.32
Percent Change from Base
Stock Price
7.5SECTION 7.5SOLUTIONS TO SELF-TESTIf D1 = $3.00, P0
= $50, and the expected P at t=1 is equal to $52, what are the
stock’s expected dividend yield, capital gains yield, and total
return for the coming year?D1$3.00P0$50.00Expected
P1$52.00Exp. dividend yield6.0%=B6/B7Exp. capital gains
yield4.0%=(B8-B7)/B7Exp. total return10.0%=C10+C11
7.6SECTION 7.6SOLUTIONS TO SELF-TEST A stock is
expected to pay a dividend of $2 at the end of the year. The
required rate of return is rs = 12%. What would the stock’s
price be if the growth rate were 4%? D1$2.00g4%rs12%Stock
price$25.00A stock is expected to pay a dividend of $2 at the
end of the year. The required rate of return is rs = 12%. What
would the stock’s price be if the growth rate were
0%?D1$2.00g0%rs12%Stock price$16.67
7.7SECTION 7.7SOLUTIONS TO SELF-TEST If D0 = $4.00, rs
= 9%, and g = 5% for a constant growth stock, what are the
stock’s expected dividend yield and capital gains yield for the
coming year?D0$4.00g5%rs9%Expected D1$4.20Stock
price$105.00Expected dividend yield4.00%Expected capital
gains yield5.00%Alternatively, you know that the capital gains
yield is equal to the growth rate.Expected capital gains yield =
growth rate = 5.00%Because the total return is rs, the dividend
23. yield is rs minus the capital gains yield:Expected dividend
yield4.00%
7.8SECTION 7.8SOLUTIONS TO SELF-TEST Suppose D0 =
$5.00 and rs = 10%. The expected growth rate from Year 0 to
Year 1
(g0 to 1) = 20%, the expected growth rate from Year 1 to Year
2 (g1 to 2) = 10%, and the constant rate beyond Year 2 is gn =
5%. What are the expected dividends for Year 1 and Year 2?
What is the expected horizon value price at Year 2? What is the
expected P0?D0$5.00g0 to 120%g1 to
210%gn5%rs10%Year12D1D2Expected
dividends$6.00$6.60Expected P2$138.60PV of expected
dividends$10.91PV of expected P2$114.55Expected P0$125.45
7.11SECTION 7.11SOLUTIONS TO SELF-TEST A preferred
stock has an annual dividend of $5. The required return is 8%.
What is the Vps?Dps$5.00rps8%Vps$62.50