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1. Corporate share repurchase programs are often touted as a benefit for shareholders. But Robert Gabele, director of insider research for First Call/ Thomson Financial, noted that many of these programs are undertaken solely to acquire stock for a company's incentive options for top managers. Across all companies, existing stock options in 1998 represented 6.2 per cent of all common shares outstanding.
The following data show the number of shares covered by option grants and the number of shares outstanding for 13 companies ( Bloomberg personal Finance, January/February 2000) Shares of option Grants Outstanding ( millions) X Common shares outstanding (millions) Y Adobe Systems 20.3 61.8 Apple computers 52.7 160.9 Applied materials 109.1 375.4 Autodesk 15.7 58.9 Best Buy 44.2 203.8 Fruit of the Loom 14.2 66.9 ITT Industries 18.0 87.9 Merril Lynch 89.9 365.5 Novell 120.2 335.0 Parametric Technology 78.3 269.3 Reebok International 12.8 56.1 Silicon Graphics 52.6 188.8 Toys "R" Us 54.8 247.6
a. Develop the estimated regression equation that could be used to estimate the number of shares of option grants outstanding given the number of common shares outstanding.
b. Use the estimated regression equation to estimate the number of shares of option grants outstanding for a company that has 150 million shares of common stock outstanding.
c. Do you believe the estimated regression equation would provide a good prediction of the number of shares of option grants outstanding? Use r2 to support your answer.
d. What is the value of sample correlation coefficient?
You are an arbitrageur in London. Swiss francs are currently selling in London for U.S. $0.67. You anticipate they will be selling for U.S. $0.70 in 30 days. You purchase $1 million worth of francs on the spot market. In a 2-3 page paper examine what..
Describe the effects damage estimates would have on the financial statements of a corporation and a partnership? How do disclosure requirements differ from a corporation to a partnership and what information is required? Are the shareholders at risk ..
Given the following information on State A and State B: State A has no state income tax but a high state sales tax. State B has a medium state income tax and a medium state sales tax. Both States receive the same tax revenue per capita. Does one stat..
Compute the internal rate of return for each project. Compute the net present value for each project if the firm has a 10 percent cost of capital. Which project should be adopted? Why?
Cutler Compacts will generate cash flows of $30,000 in year 1 and $65,000 in year 2. They are presented with a new opportunity. If they make an immediate investment of $25,500, they can expect to increase their cash flows to $66,500 in year 1 and $78..
The Talley Corporation had a taxable income of $405,000 from operations after all operating costs but before (1) interest charges of $81,000, (2) dividends received of $12,150, (3) dividends paid of $32,400, and (4) income taxes. What are the firm's ..
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.9, 1.3, 1.4, and 1.5, respectively. What will the WACCs be for each div..
Big Brothers INC borrows $66,737 from the bank at 18.15% per year, compounded annually, to purchase new machinery. The loan is to be repaid in equal annual installments at the end of each year over the next 8 years. How much will each annual payment ..
Calculate the risk (standard deviation) of the following two-security portfolio in correlation coefficient between the two securities is equal to -0.6.
The next dividend payment by Halestorm, Inc., will be $4.77 per share. The dividends are anticipated to maintain a growth rate of 2 percent forever. If the stock currently sells for $4.3 per share, what is the expected capital gains yield?
Use the following returns for X and Y. Returns Year X Y 1 21.7 % 26.1 % 2 – 16.7 – 3.7 3 9.7 28.1 4 19.4 – 14.4 5 4.7 32.1 Requirement 1: Calculate the variances for X and Y. Calculate the standard deviations for X and Y.
Alex later sells her shares in the mutual fund for $12.50 per share. What would her percentage return be in a load fund return case?
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