Learn more about our help with Assignments: Finance
Search & Filtering
Finance
For the next fiscal year, you forecast net income of $50,000 and ending assests of $500,000. Your firm payout ratio is 10%. Your beginning stockholders equity is $300,000 and your beginning total liabilities are $120,000. Your non-debt liabilites such as accounts payable are forecasted to increase by $10,000. Assume your beginning debt is $ 100000. What amount of equity and what amount of debt would you need to issue to cover the net new financing in order to keep your debt-equity ratio constant?
Finance
Eberhart Manufacturing has projected sales of $145 million next year. Costs are expected to be $81 million and net investment is expected to be $15 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are
5.5 million shares of stock outstanding and investors require a return of 13 percent return on the company’s stock. The corporate tax rate is 40 percent.
a. What is your estimate of the current stock price?
b. Suppose instead that you estimate the terminal value of the company using a PE
multiple. The industry PE multiple is 11. What is your new estimate of the company’s
stock price?
5.5 million shares of stock outstanding and investors require a return of 13 percent return on the company’s stock. The corporate tax rate is 40 percent.
a. What is your estimate of the current stock price?
b. Suppose instead that you estimate the terminal value of the company using a PE
multiple. The industry PE multiple is 11. What is your new estimate of the company’s
stock price?
Finance
1. What lump sum of money must be deposited into a bank account at present time so that $500 per month can be withdrawn for five years, with the first withdrawal scheduled for six years from today? The interest rate is 12% per year compounded monthly.
2. A woman arranges to repay $5,000 bank loan in 15 equal payments at a 10% effective annual interest rate. Immediately after her fifth payment, she borrows another $2,500, also at 10% per year. When she borrows the $2,500, she talks the banker into letting her repay the remaining debt of the first loan and the entire amount of the second loan in 12 equal annual payments. The first of these payments would be one year after she receives the $2,500. Compute the amount of each of payments.
2. A woman arranges to repay $5,000 bank loan in 15 equal payments at a 10% effective annual interest rate. Immediately after her fifth payment, she borrows another $2,500, also at 10% per year. When she borrows the $2,500, she talks the banker into letting her repay the remaining debt of the first loan and the entire amount of the second loan in 12 equal annual payments. The first of these payments would be one year after she receives the $2,500. Compute the amount of each of payments.
Finance
Two firms operating under oligopoly are faced with two choices, to charge a high price or a low price. If one firm charges a low price while the other a high price, the firm that charges a low price attracts customers and earns a profit of $600,000 while the firm charging a high price loses customers and earns only $100,000. If both firms charge a high price they earn $400,000 each while if both charge a low price, they earn $200,000 each.
a) What profits are the firms likely to earn in the absence of cooperation?
b) If the firms cooperated, what profits would each firm earn?
a) What profits are the firms likely to earn in the absence of cooperation?
b) If the firms cooperated, what profits would each firm earn?
Finance
1. The profits from projects A and B have variances of $500, 000 and $45, 000 respectively. Which of the two projects is more risky if the expected values of the profits are $5000 and $500, respectively?
2. A project has expected risky cash flows of $90, 000 in perpetuity while the certainty equivalent cash flows are $60, 000. The risk free rate is 10%. What is the risk adjusted rate of return on the risky cash flows?
3. Should an investor invest in this project if the initial cost is $650, 000?
4. What would be the internal rate of return if the cost of the project was $600, 000?
2. A project has expected risky cash flows of $90, 000 in perpetuity while the certainty equivalent cash flows are $60, 000. The risk free rate is 10%. What is the risk adjusted rate of return on the risky cash flows?
3. Should an investor invest in this project if the initial cost is $650, 000?
4. What would be the internal rate of return if the cost of the project was $600, 000?
Finance
A firm is considering employing one of the two machines A and B over a period of 4 years at the end of which the salvage value of each is zero. The cost of machine A is $10, 000 while that of machine B is $11, 000. The probability distributions of the returns for each machine are given in the table below.
PROBABILTY MACHINE A($) MACHINE B($)
0.25 6000 7000
0.50 5000 5000
0.25 4000 3000
The risk free discount rate is 10% while the risk premium applied as follows.
STANDARD DEVIATION($) RISK PREMIUM
0 – 999 0%
1000 – 1999 10%
2000 – 2999 10%
3000 – 3999 20%
Which of the two machines should be installed?
PROBABILTY MACHINE A($) MACHINE B($)
0.25 6000 7000
0.50 5000 5000
0.25 4000 3000
The risk free discount rate is 10% while the risk premium applied as follows.
STANDARD DEVIATION($) RISK PREMIUM
0 – 999 0%
1000 – 1999 10%
2000 – 2999 10%
3000 – 3999 20%
Which of the two machines should be installed?
Finance
The owner of a firm expects to make a profit of $100 for each of the two years and be able to sell the firm at the end of the second year at $800. The owner of the firm believes the appropriate discount rate for the firm is 15%. What is the value of the firm?
Finance
A firm owned by an investor who invested $500, 000 earns a profit of $150, 000 a year. The best investment alternative for the investor is a portfolio of stocks and bonds earning a return of 12%. What is the economic profit?
Finance
Which would be most helpful when considering a large expenditure that might require repeating payments?
1 careful consideration of short-term goals
2 recording income and spending over the past year
3 creating a budget to consider future income and spending
4 learning more about different kinds of accounts to manage money
1 careful consideration of short-term goals
2 recording income and spending over the past year
3 creating a budget to consider future income and spending
4 learning more about different kinds of accounts to manage money
Finance
The current price of a non-dividend paying stock is $2600. You collect the following
additional information on the stock: E[R] = 9%, and σ[R] = 20%. The term structure
of interest rates is flat with r = 2%. For this question, you will be considering options
with a maturity T of one year and a strike price X = $2650
a) What is the expected return of the following trading strategy: (i) buy two call
options on the stock, (ii) sell two put options on the stock, (iii) buy $5300/(1+2%)
of 1-year zero coupon bonds?
additional information on the stock: E[R] = 9%, and σ[R] = 20%. The term structure
of interest rates is flat with r = 2%. For this question, you will be considering options
with a maturity T of one year and a strike price X = $2650
a) What is the expected return of the following trading strategy: (i) buy two call
options on the stock, (ii) sell two put options on the stock, (iii) buy $5300/(1+2%)
of 1-year zero coupon bonds?
