A$)$ The management of Jordan Industries wants to analyze the performance of the company$$s stock in the stock market. They want to compare the stock performance with Johnson Inc, a strong competitor in the industry, and the market index. The following data is available for managerial finance analysis.

Year

Jordan Industries

Johnson Incorporated

Market Index

Capital gain$/$loss

Dividend

Purchased

Price

Capital gain$/$loss

Dividend

Purchased

price

Rate of Return

$2020$

$$6\mathrm{.}79$

$$2\mathrm{.}23$

$$23\mathrm{.}53$

$$5\mathrm{.}80$

$$3\mathrm{.}52$

$$79\mathrm{.}32$

$52\mathrm{.}8\%$

$2019$

$-$$$5\mathrm{.}08$

$$2\mathrm{.}65$

$$28\mathrm{.}61$

$$5\mathrm{.}00$

$$3\mathrm{.}65$

$$74\mathrm{.}32$

$2\mathrm{.}30\%$

$2018$

$$13\mathrm{.}40$

$$2\mathrm{.}73$

$$15\mathrm{.}21$

$-$$$12\mathrm{.}80$

$$3\mathrm{.}45$

$$87\mathrm{.}12$

$12\mathrm{.}90\%$

$2017$

$$2\mathrm{.}58$

$$2\mathrm{.}57$

$$12\mathrm{.}63$

$-$$$8\mathrm{.}00$

$$3\mathrm{.}47$

$$95\mathrm{.}12$

$14\mathrm{.}90\%$

$2016$

$-$$$0\mathrm{.}58$

$$2\mathrm{.}23$

$$13\mathrm{.}21$

$$10\mathrm{.}88$

$$3\mathrm{.}55$

$$84\mathrm{.}25$

$16\mathrm{.}80\%$

$*$Capital gain $=$ difference between ending price and beginning price

Use the data given to calculate the annual returns for Jordan Industries, and Johnson Inc during the $5-$year period.

Calculate the historical average returns for Jordan Industries, Johnson Inc., and the market index during the $5-$year period.

B$)$ Jack Boyd, another individual investor wants to purchase four stocks for his portfolio. The expected return, portfolio weights, and the betas of the stocks are given below:

Stocks

Beta

Portfolio weight

Expected return

Crater Industries

$0\mathrm{.}80$

$30\%$

$10\mathrm{.}20\%$

Rohn Inc.

$0\mathrm{.}89$

$20\%$

$10\mathrm{.}74\%$

Hirst Inc.

$1\mathrm{.}20$

$30\%$

$12\mathrm{.}60\%$

Laramie Inc.

$1\mathrm{.}34$

$20\%$

$14\mathrm{.}64\%$

Calculate the portfolio beta.

Calculate the portfolio$$s required return.

C$)$ Crater Industries is expected to pay a $$4\mathrm{.}75$ per share dividend at the end of this year $($i$.$e$.,$ D$1=$ $$4\mathrm{.}75).$ The dividend is expected to grow at a constant rate of $4\%$ a year. The required rate of return on the stock is $10\mathrm{.}2\%.$ What is the estimated value per share of Carter stock?

D$)$ Rohn Inc. is expected to have free cash flow $($FCF$)$ of $$125$ million next year and an expected constant growth rate of $6\%$ thereafter. The weighted average cost of capital $($WACC$)$ for the company is $10\mathrm{.}0\%.$ Using the constant growth model, estimate the value of operations for Rohn Inc.

E$)$ The most recent free cash flow $($FCF$)$ for Hirst Inc. was $$220$ million, and the management expects the free cash flow to begin growing immediately at a $6\%$ constant rate. The cost of capital is $13\%.$ Using the constant growth model, determine the value of operations for Hirst Inc.

F$)$ Hirst Inc. balance sheet shows that it has $$15$ million short$-$term investments, $$20$ million in notes payable, $$65$ million in long$-$term bonds, and $$20$ million in preferred stock. Hirst has $65$ million of shares outstanding. Calculate the following:

total intrinsic value for Hirst Inc.

intrinsic value of equity for Hirst Inc.

intrinsic stock price per share for Hirst Inc.

G$)$ Distinguish between call option and put option.

H$)$ The current price of a stock is $$60.$ In $1$ year, the price will be either $$75$ or $$45.$ The annual risk$-$ free rate is $5\%.$ Find the price of a call option on the stock that has an exercise price of $$65$ and that expires in $1$ year. $($Hint: Use daily compounding.$)$