All Matches

Solution Library

Expert Answer

Textbooks

Search Textbook questions, tutors and Books

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Tutors
Study Help
Hire a Tutor
AI Study Help New

Search
Sign In
Register

study help
business
intermediate financial management

Questions and Answers of Intermediate Financial Management

2. Through trial and error, one ends up using 18 percent and 19 percent as discount rates.Present Present End of Year Dividend per Share Value at 18% Value at 19%- - - -Present value, 1-5 years =
The greater the risk-free rate, the greater the expected return on the market portfolio and the greater the beta, the greater will be the required return on equity, all other things being the same.
b. What is the required return for the project? What assumptions are critical?(Note: To solve, you may use the technique described in the special section"Calculating Betas Manually.")m; Solutions to
a. Compute the beta for Super Splash Spinning Corporation.
Litzenberger believes that the average annual return for the market index and the average annual return for the risk-free rate over the 10-year period are reasonable proxies for the returns likely to
13. The North Bend Bait Company is contemplating an investment to get it into the production and sale of spinning rods and reels. Heretofore, it has produced only artificial baits. The financial
c. Would your answer be the same if the acquisition increased the surviving company's growth rate to 8 percent forever?
b. Would your answer be the same if the overall required rate of return stayed the same?
a. Should Cougar Pipe Company acquire Red Wilson Rod, Inc.?
12. Cougar Pipe Company is considering the cash acquisition of Red Wilson Rod, Inc., for $750,000. The acquisition is expected to result in incremental cash flows of $125,000 in the first year, and
b. With a firm-risk approach to evaluating risky investments, which portfolio do you prefer?
a. Plot these various portfolio possibilities on graph paper.
. EA plus 1,2,3, and 4 kpected let Present Value$30 33 32 35 34 35 38 37 37 36 39 40 39 42 41 44 Standard Deviation$20 23 21 24 25 23 25 26 24 25 28 26 27 30 28 31 236 Part I1 investment in Assets
15. EA plus 2,3, and 4
14. EA plus 1,3, and 4
13. EA plus 1,2, and 4
12. EAplus 1,2, and 3
11. EA plus 3 and 4
10. EAplus 2 and 4
9. EA plus 2 and 3
8. EA plus 1 and 4
7. EA plus 1 and 3
6. EAplus 1 and 2
5. EA plus 4
4. EA plus 3
3. EA plus 2
2. EA plus 1
1. Existing assets (EA) only
11. The Empire Mining Company's existing portfolio of assets has an expected net present value of $30 million and a standard deviation of $20 million. The company is considering four new
b. In words, what would happen to your answer to Problem 9a if market imperfections made unsystematic risk a factor of importance?
10.a. In your answer to Problem 9a, what would happen if Ponza International had a debt-to-total-capitalization ratio of 40 percent and intended to finance each of the projects with 40 percent debt,
b. What are the assumptions involved in your acceptance criterion?
a. Which projects should be accepted and which rejected?
The expected return on the market index is 13 percent in the foreseeable future, and the risk-free rate is currently 7 percent. The divisions are evaluating a number of projects, which have the
9. Ponza International, Inc., has three divisions. One is engaged in leisure wear, one in graphics, and one in household paint. The company has identified proxy companies in these lines of business
b. What would happen if expected after-tax cash flows were $8,000 per year instead of $10,000?
a. What is the adjusted present value (APV) of the project? Is the project acceptable?
8. Grove Plowing, Inc., is considering investing in a new snowplow truck costing$30,000. The truck is Likely to provide a cash return after taxes of $10,000 per year for 6 years. The unlevered cost
7. The Tumble Down D Ranch in Montana is considering investing in a new mechanized barn, which will cost $600,000. The new barn is expected to save$90,000 in annual labor costs indefinitely (for
b. Is the figure computed an appropriate acceptance criterion for evaluating investment proposals?
a. Compute the firm's present weighted average cost of capital.
6. The Kalog Precision Tool Company was recently formed to manufacture a new product. The company has the following capital structure in market value terms:13% debentures of 2005 $ 6,000,000 12%
d. The same common stock if dividends are expected to grow at the rate of 5 percent per year and the expected dividend in year 1 is $2.
c. A common stock selling at $16 and paying a $2 dividend, which is expected to be continued indefinitely.
b. A preferred stock, sold at $100 with a 10 percent coupon and a call price of $110, if the company plans to call the issue in 5 years (use an approximation method).
a. A bond, sold at par, with a 10.40 percent coupon.
5. Assuming that a firm has a tax rate of 30 percent, compute the after-tax cost of the following assets:
4. Zosnick Poultry Corporation has launched an expansion program that, in 6 years, should result in the saturation of the Bay Area marketing region of Cali-, -) fornia. As a result, the company is
c. The dividend next year will be $3 per share.
b. The firm does not change its dividend, the risk complexion of its assets, or its degree of financial leverage.
a. A perpetual-growth valuation model is a reasonable representation of the way the market values ICOM.
3. On March 10, International Copy Machines (ICOM), one of the "favorites" of the stock market, was priced at $300 per share. This price was based on an expected annual growth rate of at least 20
b. If the risk-free rate presently is 13 percent and the expected return on the market portfolio is 17 percent, what return should the company require for the project if it uses a CAPM approach?
a. If Willie Sutton Bank Vault Company wishes to enter the automated bank teller business, what systematic risk (beta) is involved if it intends to employ the same amount of leverage in the new
2. Willie Sutton Bank Vault company has a debt-to-equity ratio (market value)of .75. Its present cost of debt funds is 15 percent, and it has a marginal tax rate of 40 percent. Willie Sutton Bank
c. What is the expected value of required rate of return?
b. What is the range of required rates of return?
a. What is the required rate of return for the project using the mode beta of 1.10?
1. Acosta Sugar Company has estimated that the overall return for Standard &Poor's 500-Stock Index wiU be 15 percent over the next 10 years. The company also feels that the interest rate on Treasury
b. On what assumptions does a price that high depend?
a. What is the maximum price that Williams Warbler Company might pay for Acme?
5. The Williams Warbler Company is contemplating acquiring the Acme Brass Company. Incremental cash flows arising from the acquisition are expected to be the following (in thousands):Average of Years
b. What would you do if a CAPM approach to the problem suggested a different decision?
a. Would you invest in one or both projects?
4. You are evaluating two separate projects as to their effect on the total risk and return of your corporation. The projects are expected to result in the following(in thousands):Net Present Value
The risk-free rate presently is 6 percent, and the expected return on the market portfolio 11 percent. Using the CAPM approach, what required returns on investment would you recommend for these two
The company has thought about using the capital asset pricing model in this regard. It has identified two samples of companies, with the following mode-value characteristics:Debt/lofal Tax Beta
3. Novus Nyet Company has two divisions: Health Foods and Specialty Metals.Each of these divisions employs debt equal to 30 percent of its total requirements, with equity capital used for the
2. Silicon Wafer Company presently pays a dividend of $1. This dividend is expected to grow at a 20 percent rate for 5 years and at 10 percent per annum thereafter. The present market price per share
1. Determine the required return on equity for the following project situations, using the capital asset pricing model.C h a p t e r 8 C r e a t i n g V a l u e t h r o u g h R e q u i r e d R e t u
4. Derive the required rate of return on equity using the proxy beta obtained in step 3, together with the expected return on the market portfolio, fZ,, and the risk-free rate, Rf.
3. Calculate the central tendency of the betas of the companies in the sample.Often the median is the best measure to use, because the arithmetic average is distorted by outliers. Sometimes a modal
2. Obtain the betas for each proxy company in the sample, if the CAPM is being used. These betas can be obtained from a number of services, in-%MichaeCl . Ehrhardt and Yatin N. Bhagwat, "A
1. Determine a sample of companies that replicate as nearly as possible the business in which an investment is being contemplated. The matching will only be approximate.
While the option value raises the worth of the project substantially, it does not entirely offset the initial project's negative NPV. Therefore, we still would reject the project.
b. Option value = .3($5.51) + .3($1.94) + .4(0)= $2.23 million Worth of project = -$2.57 + $2.23= -$.34 million
a. At time 0, the initial project has an NPV of -$2.57 million, and it . ~would be rejected.
The coefficient of variation of existing projects (u/NPV) = 18,112/46,000 = .39. The coefficient of variation for existing projects plus puddings= 22,659/58,000 = .39. Although the pudding line has a
b. Net present value = $46,000 + $12,000 = $58,000 Standard deviation = [328,040,000 + (9,000)2+ (2)(.4)(9,000)(8,000)+ (2)(.2)(9,000)(7,000)+ (2)(.3)(9,000)(4,000])'/ ' = [513,440,000]112= $22,659
2.a. Net present value = $16,000 + $20,000 + $10,000 = $46,000 Standard deviation = [(8,000)2 + (2)(.9)(8,000)(7,000)+ (2)(.8)(8,000)(4,000) + (7,000)2+ (2)(.84)(7,000)(4,000)+ (4,000)2]1/2=
c. From Table C, these standardized differences correspond to probabilities of approximately .38, .45, and .12, respectively. The standard deviation calculated under this assumption is much larger
b. The standard deviation of the probability distribution of possible net present values under the assumption of perfect correlation of cash flows over time is
1.a. The expected values of the distributions of cash flows for the three periods are $400,000, $700,000, and $300,000. The standard deviations of the cash flows for the three periods are
a. What are the implications?
b. Suppose now that the possibility of abandonment exists and that the abandonment value of the project at the end of year 1 is $4,500. Calculate the new mean NPV, assuming the company abandons the
a. Calculate the mean of the probability distribution of possible net present values.
To go regional at the end of the 3 years would cost another $10 million. To distribute regionally from the outset would cost $12 million. The risk-free rate is 4 percent. In either case, the product
9. The Kazin Corporation is introducing a new product, which it can distribute initially either in the state of Georgia or in the entire Southeast. If it distributes in Georgia alone, plant and
b. What is the value of the option? the worth of the project with the option?Is it acceptable?
a. Is the initial project acceptable?
Pet will be able to expand by another 100 cages at the end of 4 years. The cost per cage would be $200. With the new cages, incremental net cash flows of $17,000 per year for years 5 through 15 would
8. The Ferret Pet Company is considering a new location. If it constructs an office and 100 cages, the cost will be $100,000 and the project is likely to produce net cash flows of $17,000 per year
b. Which portfolios dominate?
a. Plot the portfolios.
7. The Plaza Corporation is confronted with several combinations of risky investments.Net Present Old Portfolio Value u Chapter 7 Risk and Real Options in Capital Budgeting 193 Net Present New
which two proposals dominate?Proposal and2 1 and 3 2 and 3 1.00 .60 .40 .70
Expected net present value 1 $10,000 $8,000 $6,000 Standard deviation 1 4,000 3,000 4,000 Assuming the following correlation coefficients for each possible combination,
6. The Windrop Company will invest in two of three possible proposals, the cash flows of which are normally distributed. The expected net present value(discounted at the risk-free rate) and the
e. What decision rule would you suggest for adoption of projects within this context? Which (if any) of the foregoing projects would be adopted under your rule?
d. What is the probability that each of the projects will have a net present value greater than O?

Showing 1100 - 1200 of 1675

First
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Services

Sitemap
Fun
Definitions
Become Tutor
Study Help Categories
Recent Questions
Expert Questions

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Campus Ambassador

Secure Payment

Download Our App

© 2024 SolutionInn. All Rights Reserved