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Using Yahoo! Finance find the value of beta for your reference company. Write a two page paper discussing the following items:
1. What is the estimated beta coefficient of your company? What does this beta mean in terms of your choice to include this company in your overall portfolio?
2. Given the beta of your company, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what is the meaning of the 'cost of equity'.
3. Choose two other companies, look up their "Beta" and report the names of these companies and their betas. Suppose you invest one third of your money in each of the stocks of these companies. What will the beta of the portfolio be? Given the data in (b), what will the Expected Rate of Return on this portfolio be? Do you feel that the three-stock portfolio is sufficiently diversified or does it still have risk that can be diversified away? Explain.
Explain the major differences between a fixed and a flexible budget.
Microtech Corporation is increasing rapidly and currently needs to retain all of its earnings, hence it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1 coming in three years from ..
Summarize your findings in a 750- to 1050-word paper. Describe the financial viability of these businesses using ratio analyses such as a payback period analysis, ROI analysis, capitalization rate analysis—cap rate determined by annual profit divide..
Using Altman's model for privately held firms, calculate the Z-score for Stetson Skydiving Adventures. Does it appear that the firm is in imminent danger of bankruptcy?
Case Study: The following capital structure is taken from Bata Boots Co. balance sheet for the fiscal year ended April 30, 2005. This is considered the firm’s optimal capital structure.
Obtain the most recent financial statements (the annual report or Form 10-K) for a software development company from the U.S. Securities and Exchange Commission Web site (http://www.sec.gov/).
What is the approximate effective cost of missing the cash discounts from each supplier? If you could not take advantage of either cash discount offer, which supplier would you select?
Janson Bottle Corporation sold $400,000 in long-term bonds for $351,040. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10 percent.
Which of the approaches-future value or present value- do financial managers rely on most often for decision making? Why?
Evaluation of shares by discounting cash flows technique and the Hart Mountain Company is expected to experience an unusually high growth rate
The competitor would like to avoid a similar situation and wants to hear what you learned about the case. Prepare and deliver a short presentation to class, summarizing the main points. Focus on how the company can avoid a similar lawsuit.
Many times organizations will make decisions based upon what other organizations are doing at the time or based upon the latest business trend.
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