How much will joe receive for selling the family business

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Reference no: EM133489637

Discussion Post: Stock Selection Diversification and Risk

(A) What care, if any, should be taken when selecting stocks for an investment portfolio?
(B) Comment on the accuracy of the statement that as we put more stocks in a portfolio, its risk gets eliminated to zero.
(C) What is the diversification achieved by an investor if he invests in Dell, IBM, and Microsoft?
(D) What is the diversification achieved by an investor if he invests in Exxon Mobil, Dell, and Bank of America?

II. IGM Realty had stock prices of $33, $33, $38, $36, and $28 at the end of the last five quarters. If IGM pays a dividend of $1 at the end of each quarter, what is the annual realized return on IGM?

III. Use the table for the question(s) below.

Luther Corporation Consolidated Balance Sheet December 31, 2006 and 2005 (in $ millions)
Assets	2006	2005	Liabilities and Stockholders' Equity	2006	2005
Current Assets			Current Liabilities
Cash	63.6	58.5	Accounts payable	87.6	73.5
Accounts receivable	55.5	39.6	Notes payable/short-term debt	10.5	9.6
Inventories	45.9	42.9	Current maturities of long-term debt	39.9	36.9
Other current assets	6.0	3.0	Other current liabilities	6.0	12.0
Total current assets	171.0	144.0	Total current liabilities	144.0	132.0
Long-Term Assets			Long-Term Liabilities
Land	66.6	62.1	Long-term debt	239.7	168.9
Buildings	109.5	91.5	Capital lease obligations	---	---
Equipment	119.1	99.6	Total Debt	239.7	168.9
Less accumulated depreciation	(56.1)	(52.5)	Deferred taxes	22.8	22.2
Net property, plant, and equipment	239.1	200.7	Other long-term liabilities	---	---
Goodwill	60.0	--	Total long-term liabilities	262.5	191.1
Other long-term assets	63.0	42.0	Total liabilities	406.5	323.1
Total long-term assets	362.1	242.7	Stockholders' Equity	126.6	63.6
Total Assets	533.1	386.7	Total liabilities and Stockholders' Equity	533.1	386.7

Refer to the balance sheet above. If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share.What is the market-to-book ratio in 2005? Given Debt = Notes payable/short-term debt + Current maturities of long-term debt + Long-term debt, and debt-equity ratio is calculated as debt/equity, then using book value of equity, what is debt-equity ratio? Using market value of equity, what is debt-equity ratio?

IV. Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is 6%.

In terms of present value (PV), how much will Joe receive for selling the family business?

Reference no: EM133489637

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