Reference no: EM133489637
Discussion Post: Stock Selection Diversification and Risk
I.
(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?