Fi 515 Practice Problem Final Essay

5680 words - 23 pages

Chapter 9

1. Stock A has a required return of 10 percent. Its dividend is expected to grow at a constant rate of 7 percent per year. Stock B has a required return of 12 percent. Its dividend is expected to grow at a constant rate of 9 percent per year. Stock A has a price of $25 per share, while Stock B has a price of $40 per share. Which of the following statements is most correct?

a. The two stocks have the same dividend yield. *
b. If the stock market were efficient, these two stocks should have the same price.
c. If the stock market were efficient, these two stocks should have the same expected return.
d. Statements a and c are correct.
The ...view middle of the document...

The company's beta is 1.2, the market risk premium is 5%, and the risk-free rate is 3%. What is the company's current stock price?

a. $15.00
b. $20.00
c. $25.00 *
d. $30.00

[pic]

4. McKenna Motors is expected to pay a $1.00 per-share dividend at the end of the year (D1 = $1.00). The stock sells for $20 per share and its required rate of return is 11 percent. The dividend is expected to grow at a constant rate, g, forever. What is the growth rate, g, for this stock?

a. 5%
b. 6% *
c. 7%
d. 8%

ks = D1/P0 + g
g = ks - D1/P0
g = 0.11 - $1/$20 = 0.06 = 6%.

5. The last dividend paid by Klein Company was $1.00. Klein’s growth rate is expected to be a constant 5 percent for 2 years, after which dividends are expected to grow at a rate of 10 percent forever. Klein’s required rate of return on equity (ks) is 12 percent. What is the current price of Klein’s common stock?
a. $21.00
b. $33.33
c. $42.25
d. $50.16 *
[pic]
Numerical solution:
P0 = [pic] + [pic] = $50.16.

6. You must estimate the intrinsic value of Gallovits Technologies’ stock. Gallovits’s end-of-year free cash flow (FCF) is expected to be $25 million, and it is expected to grow at a constant rate of 8.5% a year thereafter. The company’s WACC is 11%. Gallovits has $200 million of long-term debt plus preferred stock, and there are 30 million shares of common stock outstanding. What is Gallovits' estimated intrinsic value per share of common stock?

a. $22.67
b. $24.00
c. $25.33
d. $26.67 *

[pic]

Chapter 10

7. Campbell Co. is trying to estimate its weighted average cost of capital (WACC). Which of the following statements is most correct?

a. The after-tax cost of debt is generally cheaper than the after-tax cost of equity. *
b. Since retained earnings are readily available, the cost of retained earnings is generally lower than the cost of debt.
c. The after-tax cost of debt is generally more expensive than the before-tax cost of debt.
d. Statements a and c are correct.

8. Wyden Brothers has no retained earnings. The company uses the CAPM to calculate the cost of equity capital. The company’s capital structure consists of common stock, preferred stock, and debt. Which of the following events will reduce the company’s WACC?

a. A reduction in the market risk premium. *
b. An increase in the flotation costs associated with issuing new common stock.
c. An increase in the company’s beta.
d. An increase in expected inflation.

Statement a is true; the other statements are false. If RPM decreases, the cost of equity will be reduced. Answers b through e will all increase the company’s WACC.

9. Dick Boe Enterprises, an all-equity firm, has a corporate beta coefficient of 1.5. The financial...

Other Papers Like Fi 515 Practice Problem Final

Apple & Starbucks Essay

1350 words - 6 pages logistically, while Starbucks did outsource their technology to Unisys, there would have to be a joint resolution to any problem that both sides would have to solve. If a server should fail, Apple would lose money and so would Starbucks. AT&T AT&T enters the equation for the reason that cyber café exist, Wi-Fi. This is a very important part of the partnership because one would need to access the internet to connect, listen, and/or download music

Pest Analysis of Starbucks

680 words - 3 pages 6-2 Final Project Milestone Three: PEST Analysis Wilhelmina Williams MBA 515 July 3, 2016 Dr. Jonathan Sturtz 6-2 Final Project Milestone Three: PEST Analysis A PEST Analysis is used to assess a business’ external factors. PEST stands for Political, Economic, Social, and Technological. The analysis will help to establish how the four elements will affect the behaviors and operation of the company in the long-term. The significance

Anglicizarea Limbilor Europene

1950 words - 8 pages fără ca aceştia să fi fost asimilaţi pe deplin. A Dictionary of European Anglicisms / Dicţionar de anglicisme europene, apărut sub îngrijirea lui Manfred Görlach la Editura Oxford University Press în 2001, primul de acest fel în lexicografia mondială, încearcă să stabilească adevărul, consemnând anglicismele din şaisprezece limbi europene: patru de origine germanică (germana, islandeza, olandeza şi norvegiana), patru de origine latină (franceza

Simplified Spot Speed Studies

1380 words - 6 pages between 33 and 36 mph. By interpolating between 27 and 30 mph, the exact 50th percentile speed is calculated to be 29.6 mph; between 33 and 36, the exact 85th percentile speed is 35.8 mph. For more information The Handbook of Simplified Practice for Traffic Studies includes sample data collection forms, information about contracting for spot speed studies, and additional study details. You can also contact Keith Knapp, LTAP director, 515-294

Personalitatea

3682 words - 15 pages . Dacă ştim cu ce fel de persoană avem de-a face, ne poate fi mai uşor să-i înţelegem comportamentul. De asemenea, putem să anticipăm reacţiile unei persoane într-o anumită situaţie. Totuşi, aceste clasificări nu sunt foarte ştiinţifice. Ele pot fi uneori chiar înşelătoare. Psihologii — oamenii de ştiinţă ce se ocupă cu studiul comportamentului uman şi cu complexitatea minţii — cercetează în mod continuu ceea ce

Jbhifi Evaluation

3511 words - 15 pages cash. The Quick ratio in JB Hi-Fi is very low which indicates the company is relying too much on its inventories. The Quick Ratio indicates that the company is heavily relied on its inventories, it is very likely that JB HI-FI have a liquidity problem as inventories are difficult to turn into cash. 4. Earnings Management In determining the level of accruals of the company, we firstly attempted the simple methods including accruals ratio

President

4568 words - 19 pages propriu al conturilor naţionale, excepţie făcând în principiu activităţile ce generează producţia ilegală. Totodată, Sistemul Conturilor Naţionale din 1993, recomandă, în pofida dificultăţilor practice evidente pe care le ridică colectarea de date privind producţia ilegală, includerea activităţilor productive ilegale în PIB, datorită veniturilor generate de către acestea care pot fi cheltuite pe bunuri şi servicii legale. Oficiul pentru

Case Analysis 1: Sara Lee vs Dell vs Jcpenney

1845 words - 8 pages cost, and decreasing risk from less inventory. For JCPenney, it concerned users’ experience. There are 90% of their mobile checkout system was customized. Wi-Fi, RFID, and mobile checkout system are all built to serve customer, in order they can have better shopping experience. Key differences of the situations There are some differences between three cases. Such as: different industry involved; different problem faced; different strategy

Office Management Assessment

1194 words - 5 pages office software via WI-FI connectivity or WAN (wireless area network). This would then ensure the partners can still maintain communication with communication with the administrators and clients when out with the office, reducing the stress and workload that is left to the administrators, which then they could continue with work at the office improving work productivity. The smart phones is also of use, as where there is no WI-FI connectivity

Binge Drinking Notes

5031 words - 21 pages they can move about and even speak, but later they have little or no memory of what they have done during the blackout episode. Anyone experiencing an alcoholic blackout needs to consider seeking treatment for alcohol abuse or alcoholism. However, some college students and others who are social drinkers have also experienced blackouts. They may not yet have an alcohol abuse problem, but the possibility that a problem exists should at least be

Pounding Engineering

5242 words - 21 pages ; Maison 1997). In the Mexico City earthquake pounding was responsible for 15% of the major damages. Figure XX (damages) Figure XX (Loma Prieta damages) The theories related to the physic of impact are complex but simple model can be derived to understand the problem in a structural engineering and design stand point. In the following section we will explore different models used to simulate pounding and their validity. In addition

Related Essays

Bus 515 Midterm Exam Assignment

951 words - 4 pages Multiple Choice Question 56 Supply chain management involves managing: • the flow of internal information only. • the flow of materials and information from suppliers and buyers to the final customer. • the flow of raw materials to inventory only. • managing the stock room supply only. Multiple Choice Question 14 A company with a low customer contact that is capital intensive is called: • a farm • manufacturing • quasi-manufacturing

Technology Essay

3289 words - 14 pages that co-operate to share air- medium while minimizing energy consumption. It defines WiFi system operating at 1GHz (approximately). Final approval may be on March 2016.It provides improved transmission range compared to conventional Wi-Fi due to its favorable propagation characteristics. Advanced applications include Large ScaleSensor networks, extended range hotspot and outdoor Wi-Fi for cellular traffic off-loading.[10] Figure 3. Expected Wi

Fecal Inconinence Essay

3845 words - 16 pages condition but goes on to add that in practice district nurses implement a conservative care plan focused on managing the problem rather than treating the underlying cause (DoH 1999). It is observed that one of the main causal factors is the lack of a universal definition and that there is no uniformity in the treatment of these patients. This goes without saying that funding plays a crucial part in the treatment offered as the cost implication is

Evolution Of Wi Fi Essay

3432 words - 14 pages The Evolution of Wi-Fi Charles Williams Albert Acuna ISSC340 American Military University Abstract From the creation of the IEEE standard in 1997 to current times Wi-Fi has evolved dramatically over the years. An idea to provide connectivity to devices with the absence of cables was adopted globally. Each year brings about new ways of utilizing wireless technology. This study aims to cover Wi-Fi from inception to present day and