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Question: 1. One firm is funded by equity and debt in equal amounts (at market value). One analyst estimated the WACC in the firm at 5% and the stable growth rate of dividends to be 3%. The dividend for the next year is expected to be $3. He estimates an intrinsic value for the share of $150. Assuming the same inputs, do you think his estimate of intrinsic value is too low, too high, or correct? Explain Answer: too high, of course. The analyst made a mistake. Which one?
2. Explain how you deal with the income from marketable securities in a firm's valuation?
A member of your board has asked if you have considered competitive bids for the distribution of your securities compared to a negotiated contract with a particular firm. What factors are involved in this decision?
The underlying stock price is $85, and the stock's return has a standard deviation of 20 percent per year. The risk-free rate is 4 percent per year, compounded continuously. If the exercise price is $0, what is the price of the call option?
You have just borrowed $20,000, which you will repay in 10 equal annual payments. The bank's stated rates on its loans is 9%.
If NPV of a project is greater than zero, accepting the project will increase the value of the firm's stock. Why must IRR be greater than cost of capital?
Growth and Assets. A firm wishes to maintain an internal growth rate of 6.8 percent and a dividend payout ratio of 25 percent.
MCL Ltd is a manufacturer and distributor of agricultural equipment. MCL produces milking machines and supplies as well as being the sole Australian distributor of machinery from the US- based company FarmGo Ltd.
Theon has retired and will receive regular annual payments that grow at a constant rate forever.
Explain how the Sarbanes-Oxley Act improved the transparency of banks. Why might the act have a negative impact on some banks?
How much will you need to deposit each year to meet your goal? Ignore Income Tax for this computation. Please show calculations and formula used.
What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 90 percent of these funds to their banks in the form of transaction deposits?
What was Harley Davidson total debt in 2011? Round your answer to the nearest cent.
Are most investors sophisticated enough to interpret a cash flow statement? Should they be?
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