Project #75883 - Financial Management

1.       Company Y does not plow back any earnings and is expected to produce a level dividend stream of $5 a share. If the current stock price is $40, what is the market capitalization rate? (Round your answer to 1 decimal place.)

  

  Market capitalization rate

%  

 

2.       Company Z’s earnings and dividends per share are expected to grow indefinitely by 5% a year. If next year’s dividend is $10 and the market capitalization rate is 8%, what is the current stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  

  Current stock price

 

3.       Consider three investors:

 

a. Mr. Single invests for one year.

b. Ms. Double invests for two years.

c. Mrs. Triple invests for three years.

   

Company Z’s earnings and dividends per share are expected to grow indefinitely by 5% a year, the next year’s dividend is $10 and the market capitalization rate is 8%.

  

Assume each invests in company Z, what is the expected rate of return? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  

 

Expected
Rate of Return

  Mr. Single

 %  

  Ms. Double

%  

  Mrs. Triple

%  

 

4.       Consider the following information:

 

 

Cash Flows, $

  Project

 C0

 C1

C2

C3

C4

A

–5,000   

+1,000   

+1,000   

+3,000  

0   

B

–1,000   

0   

+1,000   

+2,000  

+3,000   

C

–5,000   

+1,000   

+1,000   

+3,000  

+5,000   


 

a.

What is the payback period on each of the above projects?

 

Project

Payback Period

A

year(s)  

B

year(s)  

C

year(s)  


 

b.

Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?

 

 

 

 

Project A and Project C

 

Project A and Project B

 

Project A

 

Project B and Project C

 

Project B

 

Project C

 

Project A, Project B and Project C

 

c.

If you use a cutoff period of three years, which projects would you accept?

 

 

 

 

Project B

 

Project A

 

Project A, Project B and Project C

 

Project A and Project B

 

Project A and Project C

 

Project C

 

Project B and Project C

 

d.

If the opportunity cost of capital is 10%, which projects have positive NPVs?

 

 

 

 

Project B

 

Project C

 

Project A, Project B and Project C

 

Project A and Project B

 

Project A and Project C

 

Project A

 

Project B and Project C

 

e.

“If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” True or false?

 

 

 

 

True

 

False

 

f-1.

If the firm uses the discounted-payback rule, will it accept any negative-NPV projects?

 

 

 

 

Yes

 

No

 

f-2.

Will it turn down positive-NPV projects?

 

 

 

 

Yes

 

No

 

 

 

5.       You have the chance to participate in a project that produces the following cash flows:

 

Cash Flows, $

C0

C1

C2

+5,000      

+4,000     

–11,000    


 

a.

The internal rate of return is 13%. If the opportunity cost of capital is 10%, what is the NPV of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  NPV

 

b.

Would you accept the offer?

 

 

 

 

Yes

 

No

Subject Business
Due By (Pacific Time) 07/11/2015 12:00 am
Report DMCA
TutorRating
pallavi

Chat Now!

out of 1971 reviews
More..
amosmm

Chat Now!

out of 766 reviews
More..
PhyzKyd

Chat Now!

out of 1164 reviews
More..
rajdeep77

Chat Now!

out of 721 reviews
More..
sctys

Chat Now!

out of 1600 reviews
More..
sharadgreen

Chat Now!

out of 770 reviews
More..
topnotcher

Chat Now!

out of 766 reviews
More..
XXXIAO

Chat Now!

out of 680 reviews
More..
All Rights Reserved. Copyright by AceMyHW.com - Copyright Policy