1. Midnight Hour Inc. has declared a $6.30 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 25%. New IRS regulations require that taxes be witheld at the time the dividend is paid. Midnight hour sells for $83.00 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?

4. Roll Corporation currently has 270,000 shares of stock outstanding that sell for $73 . Assuming no market imperfections or tax effects exist, what will the share price be after:

a.RC has a five for three stock split?

b.RC has a 15 percent stock dividend?

c.RC has a 42.5 percent stock dividend?

d.RC has a four for seven reverse stock split?

Determine the new number of shares outstanding in parts a through d.

7. The market value balance sheet for Outbox Manufacturing is shown here. Outbox has declared a 25 percent stock dividend. The stock goes ex dividend tomorrow. There are 25,000 shares of stock outstanding.What will the ex dividend price be?

Cash $145,000 Debt 127,000

Fixed assets 598,000 Equity 616,000

Total 743,000 Total 743,000

16. The Sharpe Co. just paid a dividend of $2.05 per share of stock. Its target payout ratio is 40 percent. The company expects to have earnings per share of $6.20 one year from now.

16a. If the adjustment rate is .3 as defined in the Litner model , what is the dividend one year from now?

UNIT 1: TEXTBOOK PROBLEMS CHAPTER 2: PROBLEM 1 Current Assets Net Fixed Assets Current Liabilities Long-Term Debt $7,300 $26,200 $5,700 $12,900 Shareholder Equity = Net Working Capital = #NAME? #NAME? CHAPTER 2: PROBLEM 2 Sales Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 35% Net Income = Cash Dividends Addition to Retained Earnings = Tax Rate = Income Statement $675,300 $297,800 $45,100 #NAME? $20,700 #NAME? #NAME? #NAME? $62,000 #NAME? 35% CHAPTER 2: PROBLEM 4 Taxable Income $315,000 Table 2.3 Taxable Income Taxable Income (cont) Tax Rate 0 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 + 15% 25% 34% 39% 34% 35% 38% 35% Income Taxes = Average Tax Rate = Marginal Tax Rate = #NAME? #NAME? #NAME? (Note: No formula needed. Just input the correct rate from the Tax Rate column) CHAPTER 2: PROBLEM 5 Sales Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 40% Net Income Tax Rate $29,200 $10,400 $1,800 #NAME? $1,050 #NAME? #NAME? #NAME? 40% Operating Cash Flow = #NAME? CHAPTER 3: PROBLEM 2 Debt/Equity Ratio Return on Assets Total Equity 0.65 9.80% $850,000 Equity Multiplier = Return on Equity = Net Income = #NAME? #NAME? #NAME? CHAPTER 3: PROBLEM 6 ROE Payout Ratio Retention Ratio Sustainable Growth Rate = 16% 25% #NAME? #NAME? (Note: You must calculate the retention ratio first then the sustainable growth rate) UNIT 2: TEXTBOOK PROBLEMS CHAPTER 4: PROBLEM 2 (a thru c) Present Value Interest Rate Number of Years Future Value = A. 3,200 6% 10 #NAME? B. 3,200 8% 10 #NAME? C. 3,200 6% 20 #NAME? A. 15,451 7% 12 #NAME? B. 51,557 9% 8 #NAME? C. 886,073 14% 19 #NAME? D. 550,164 16% 24 #NAME? A. 217 307 3 #NAME? B. 432 896 10 #NAME? C. 41,000 162,181 13 #NAME? D. 54,382 483,500 26 #NAME? A. 625 1,284 9% #NAME? B. 810 4,341 11% #NAME? C. 18,400 402,662 7% #NAME? D. 21,500 173,439 10% #NAME? 5% $960 $840 $1,935 $1,350 #NAME? 13% $960 $840 $1,935 $1,350 #NAME? 18% $960 $840 $1,935 $1,350 #NAME? CHAPTER 4: PROBLEM 3 Future Value = Interest Rate Number of Years Present Value = CHAPTER 4: PROBLEM 4 Present Value = Future Value Number of Years Interest Rate CHAPTER 4: PROBLEM 5 Present Value = Future Value Interest Rate Number of Years (or Periods) CHAPTER 4: PROBLEM 11 Discount Rate Year 1: Year 2: Year 3: Year 4: Present Value @ 5%, 13%, and 18% = (Note: Use the built-in NPV formula in Excel) CHAPTER 5: PROBLEM 2 A. Settlement (Think of Settlement as the beginning of the duration of the bond) Maturity (Think of Maturity as the end of the duration of the bond) Rate (Coupon Rate) YTM (Yield to Maturity or Required Rate of Return) Redemption (Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by mu Frequency (Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1) Basis (Always leave it blank) Bond Price #NAME? (The answer. But you need to multiply it by 10 to get the actual bond price) Multiply by 10 #NAME? (Microsoft gives the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price) CHAPTER 5: PROBLEM 3 Settlement Maturity Rate Pr Redemption Frequency Basis: YTM #NAME? CHAPTER 6: PROBLEM 2 Dividend Payment Dividend Growth Rate ZYX Stock Price Required Return = $1.99 4.50% $31 #NAME? CHAPTER 6: PROBLEM 4 Dividend Dividend increase per year Required Return (Return on Investment) Stock Price = $2.65 4.75% 11% #NAME? (Think of Settlement as the beginning of the duration of the bond) (Think of Maturity as the end of the duration of the bond) (Coupon Rate) (The bonds price per $100 face value) (Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000) (Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1) (Always leave it blank) ultiplying the answer by 10) UNIT 3: TEXTBOOK PROBLEMS CHAPTER 7: PROBLEM 1b Project A 15% ($14,500) $8,500 $6,800 $2,800 #NAME? Project B 15% ($9,800) $4,700 $4,200 $4,100 #NAME? (Note: You will choose the project that has the highest NPV since it creates the most w A. $3,200 $825 $825 $825 $825 $825 $825 $825 $825 #NAME? B. $4,600 $825 $825 $825 $825 $825 $825 $825 $825 #NAME? Year 0 1 2 3 IRR = Project A ($5,200) 1,800 3,200 2,200 #NAME? Project B ($3,600) 1,300 2,100 1,800 #NAME? Discount Rate Year 0 (Initial Cost) 1 2 3 4 5 6 7 15% Discount Rate Year 0 Year 1 Year 2 Year 3 NPV = CHAPTER 7: PROBLEM 2 Year 0 1 2 3 4 5 6 7 8 Payback Period = C. $7,900 $825 $825 $825 $825 $825 $825 $825 $825 #NAME? CHAPTER 7: PROBLEM 8 CHAPTER 7: PROBLEM 9 First find the NPV Now calculate the Profitability Index ($185,000) 62,000 62,000 62,000 62,000 62,000 62,000 62,000 #NAME? #NAME? $185,000 (Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow) (Use the positive amount of the initial cost in cell C44 in the formula. You would only accept the pro CHAPTER 8: PROBLEM 1 Cost of Souffle Maker Economic Life # of Souffles produced per year Cost to make each Souffle Price of each Souffle Discount Rate Tax Rate $27,000 6 2,300 $2 $7 14% 34% Step 1: First calculate the Operating Cash Flow ($27,000) years #NAME? Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below Year 1 #NAME? Year 2 #NAME? Year 3 #NAME? Year 4 #NAME? Year 5 #NAME? Year 6 #NAME? Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative NPV = #NAME? (You will accept the project if the NPV is positive) most wealth) the project if the Profitability Index is above 1) UNIT 4: TEXTBOOK PROBLEMS CHAPTER 10: PROBLEM 1 Beginning Stock Price Ending Stock Price Dividend Percentage Total Return = $73 $82 $1.20 #NAME? CHAPTER 10: PROBLEM 12 Stock Return the past 5 years -18.35% Holding Period Return for the Stock = #NAME? CHAPTER 10: PROBLEM 14 Price of Preferred Stock Last Year Current Price of Preferred Stock Preferred Stock Dividend Face Value of Preferred Stock Total Return = $94.83 $96.20 4.20% $100 #NAME? CHAPTER 10: PROBLEM 15 Stock Price 3 Months Ago Current Stock Price First calculate the total return for the 3 months Then calculate the APR by multiplying the answer in cell B35 by 4 EAR (Effective Annual Rate) = $41.75 $44.07 #NAME? #NAME? #NAME? CHAPTER 11: PROBLEM 2 Stock A Stock B Total Value of the Portfolio Expected Return on Stock A Expected Return on Stock B Expected Return on the Portfolio = $3,900 $5,700 $9,600 9.50% 15.20% #NAME? CHAPTER 11: PROBLEM 12 Beta Expected Return on the Market Risk-Free Rate 0.85 11.50% 3.40% Expected Return on the Stock = #NAME? CHAPTER 12: PROBLEM 1 Beta Risk-Free Rate Expected Return on the Market Cost of Equity = 1.21 3.50% 11% #NAME? CHAPTER 12: PROBLEM 5 Common Stock weight Debt weight Cost of Equity Cost of Debt Tax Rate WACC = 70% 30% 13% 6% 35% #NAME? 14.72% 28.47% 6.48% 16.81% (Note: Subtract your answer by 1 to obtain the correct percentage answer) UNIT 5: TEXTBOOK PROBLEMS CHAPTER 16: PROBLEM 1 Dividend Dividend Tax Stock Price Step 1: Calculate the After-Tax Dividend Step 2: Ex-Dividend Price = $6.30 25% $83 #NAME? #NAME? CHAPTER 16: PROBLEM 4 (a thru d) # of shares of stock outstanding Stock Price 270,000 $73 A. #NAME? B. #NAME? C. #NAME? D. #NAME? CHAPTER 16: PROBLEM 7 Stock Dividend # of shares of stock outstanding 25% 25,000 Market Value Balance Sheet: Cash Fixed Assets Total $145,000 $598,000 $743,000 Debt Equity Total $127,000 $616,000 $743,000 Find the market price of stock by using the equity and # of shares outstanding New shares outstanding = New Stock price = #NAME? #NAME? #NAME? CHAPTER 16: PROBLEM 16a Dividend Payout Ratio Earnings Per Share Adjustment Rate Dividend 1 year from now = $2.05 40% $6.20 0.3 #NAME? 5 3 1 1.15 1 1.425 4 7 UNIT 6: TEXTBOOK PROBLEMS CHAPTER 18: PROBLEM 2 Net Worth Long-term Debt Net Working Capital (Excluding Cash) Fixed Assets Current Liabilities $13,205 $8,200 $3,205 $17,380 $1,630 Cash = Net Working Capital (Including Cash) = Current Assets = #NAME? #NAME? #NAME? CHAPTER 19: PROBLEM 1 (a thru d) # of shares outstanding Current Stock Price # of new shares outstanding in the future (rights offering) Price of New Stock (or rights) 490,000 $75 80,000 $71 A. New Market Value of the Company = B. # of Rights Needed = C. Ex-Rights Price = D. Value of the Right = #NAME? #NAME? #NAME? #NAME? rights per new share CHAPTER 20: PROBLEM 4a Spot exchange rate for the Canadian Dollar 6 month forward rate U.S. Dollar One Canadian Dollar is worth $1.04 $1.06 $1.00 #NAME? (If amount is below 1, then the U.S. Dollar is worth more and vice versa) CHAPTER 20: PROBLEM 5a Japanese Yen Exchange Rate= British Pound Exchange Rate= Cross Rate in terms of Yen per Pound = 89 1 #NAME? = = $1 $1.62