FIN 2500 - Assignment 1

1. Puppet Corporation began with an investment by shareholders of $20,000.
2. In its first year its income earned $2,000. What would the equity section of its balance sheet show?
3. In the second year it had income of $9,000 and a dividend of $3,000 was paid. What would the equity section of its balance sheet show?
4. In the third year, Puppet sold more shares for a value of $10,000, earned income of $5,000 and paid a dividend of $2,500. What would the equity section of its balance sheet show?
5. A well-known financial institution expects that it will have no earnings for the next three years as the result of restructuring activities. Then it will begin to return to earnings of $3.00 a share. A somewhat new health services company expects $3.00 a share beginning immediately. Which company would you value higher and why?
6. The board of directors is faced with making a decision on one of the following projects
7. A new product with high profit margins and with preliminary research showing strong consumer acceptance
8. New software that will produce more-detailed disclosure of relevant and required financial information in a user-friendly, web-based environment
9. Pollution control mechanisms that will reduce effluent into the nearby river, which is popular with local residents, to zero.
10. A report from compensation experts that will closely align executive compensation and their motivation with the goals of the shareholders.

Discuss the merits of each project and identify which project, as opposed to the others, you believe will create the most shareholder wealth and why.