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Fin Corp currently pays out 100% of its earnings to shareholders as dividends. It expects to yield $4 earnings per share forever starting next year (exactly one year from now). The market risk premium is 8%, and the risk-free rate is 4%. Fin Corp's stock beta β is 1.
- What is the required rate of return for Fin Corp stocks?
- Calculate its stock's current intrinsic value if the firm keeps its current payout policy forever.
- If Fin Corp just discovers a growth opportunity, with ROE=10%. The management decides to pay out only 40% of its earnings starting from the next year's dividend and forever after, so that it can reinvest the rest in the growth opportunity. Suppose the growth opportunity lasts forever, what is the present value of its growth opportunity (PVGO)?
Calculate each company's cash balance at the end of the year. b. Explain what might cause company C's net cash from financing activities to be negative.
Mason Corp. paid a dividend of $1.85 per share last quarter on its common stock. The company's stock is currently selling for $88.45 per share, and the growth rate in dividends is 6%. Find the expected rate of return for Mason common stock.
An annuity has an interest rate of 7% and makes a quarterly payment of $2000. The annuity is to last for 5 years. What is the present value of the annuity?
Examine the concept of time value of money in relation to corporate managers. Propose two methods in which time value of money can help corporate managers in general.
Tina Haworth asks your help in understanding the essentials of effective budgeting. Identify the essentials for Tina.
Say inflation runs at 2% per year over the next twenty years. How does this inflation concept affect the individual?
The company's sales are projected to grow by 10% next year. Calculate the effects and present the forecasted income statement and balance sheet for the company.
You should also read Item #7 - "Management's Discussion and Analysis of Condition and Results of Operations" (pgs. 19 - 46) in the company's 10K Form (2011) to complete this assignment.
The Tapley Corporation is trying to determine an acceptable growth rate in sales. While the company wants to increase, it does not want to use any external funds to support such expansion due to the particularly high interest rates in market now.
An important way in which the Federal Reserve decreases the money supply is by selling bonds to the public. Using a supply-and-demand analysis for bonds, show what effect this action has on interest rates.
Present an example of the application of capital budgeting decision-making in the context of net present value and/or internal rate of return.
You have been assigned the task of analyzing whether to purchase or lease some transportation equipment for your company.
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