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Under/Over Valued Stock A manager believes his firm will earn a 16.4 percent return next year. His firm has a beta of 1.54, the expected return on the market is 14.4 percent, and the risk-free rate is 4.4 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
Ruth Hornsby is looking to invest in a three-year bond that makes semiannual coupon payments at a rate of 5.375 percent. If these bonds have a market price of $987.61, what yield to maturity and effective annual yield can she expect to earn?
A firm is expected to generate earnings of $3.50 per share next year. The mean ratio of share price to expected earnings of competitors in the same industry is 18. Based on this information, what is the expected stock price based on the price-earning..
A company manufactures a product using two machine cells. Each cell has a design capacity of 250 units per day and an effective capacity of 230 units per day. At present, actual output averages 200 units per cell, but the manager estimates that produ..
Bob contributed $7,000 of cash to BF Inc., a newly created S corporation for federal income tax purposes, and made a loan of $2,000 to BF Inc. During Year 1, BF Inc. generated ordinary income of $8,200 and tax exempt income of $2,000. No repayment wa..
From an ethical standpoint, compare the respective roles of micro finance organizations, which provide quick, often collateral-free loans, and established banks.
Martin Becker, age 64, owns and manages a commercial print shop in Maine. Martin plans to retire this year and has recently accepted an offer to sell this company for 1.8 million. Both children are married and currently employed. Dave has one son age..
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project requir..
Today you go long on 5 December contracts of lean hog futures, at a price of 72.9 cents per pound. One contract is for 40K pounds. One month later, December futures are trading at 62.6 cents per pound. If you close out your position at this time, wha..
The new finance head of a division that reports to you has just sent you his first proposed budget at the company. Walk through some of the things you are going to review and ask him questions about, especially since this is the first time you are se..
Calculate the return and risk of a two asset portfolio. Asset 1 has an annualized expected real return of 5.5% and a weight of 35% in the portfolio. Asset 2 has an annualized expected real rate of return of 2.0% and a weight of 40% in the portfolio.
You have been asked to estimate the expected free cash flow to the firm next year of Lymon Enterprises, a beverage company. The earnings before interest and taxes in the most recent year amounted to $ 150 million. The tax rate of the firm is 40%. Est..
Bouchard Company's stock sells for $20 per share, its last dividend (D0) was $1.00, its growth rate is a constant 5 percent, and the company would incur a flotation cost of 7 percent if it sold new common stock. If Bouchard has a capital budget of $2..
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