Answered step by step
Verified Expert Solution
Link Copied!
Question
1 Approved Answer

I have some finance problems need help,please download and look at them. 1. You purchased 200 shares of stock at a price of $36.72 per

I have some finance problems need help,please download and look at them.

image text in transcribed 1. You purchased 200 shares of stock at a price of $36.72 per share. Over the last year, you have received total dividend income of $322. What is the dividend yield? 2. You bought 100 shares of stock at $20 each. At the end of the year, you received a total of $400 in dividends, and your stock was worth $2,500 total. What was total dollar capital gain and total dollar return? 3. You want your portfolio beta to be 1.20. You have $800 to invest and want to divide it between an asset with a beta of 1.6 and a risk-free asset. How much should you invest in the risk-free asset? 4. What is the expected return on a portfolio which is invested 20% in stock A and 80% in stock B? State of Economy Boom Normal Recession Probability of State of Economy 20% 70% 10% Returns if State Occurs Stock A Stock B 18% 9% 11% 7% -10% 4% 5. Which one of the following stocks is correctly priced if the risk-free rate of return is 2.5% and the market risk premium is 8%? Stock Beta A .68 B 1.42 C 1.23 Expected Return 8.2% 13.9% 11.8% 6. You are comparing stock A to stock B. Given the following information, which one of these two stocks should you prefer and why? a. b. c. d. e. Rate of Return if State of Probability of State Occurs__ Economy State of Economy Stock A Stock B Boom 60% 9% 15% Recession 40% 4% -6% Stock A; because it has an expected return of 7% and appears to be more risky. Stock A; because it has a higher expected return and appears to be less risky than stock B. Stock A; because it has a slightly lower expected return but appears to be significantly less risky than stock B. Stock B; because it has a higher expected return and appears to be just slightly more risky than stock A. Stock B; because it has a higher expected return and appears to be less risky than stock A. 7. The Basket Weavers Company has 100,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 7.5 percent. The company also has 1 million shares of 10.5 percent preferred stock outstanding and 5 million shares of common stock outstanding. The preferred stock sells for $56 per share. The common stock has a beta of 1.2 and sells for $38 a share. The U.S. Treasury bill is yielding 3 percent and the return on the market is 12 percent. The corporate tax rate is 34 percent. What is Basket Weaver's weighted average cost of capital? 8. Blue Ribbon, Inc. wants to have a weighted average cost of capital of 10 percent. The firm has an aftertax cost of debt of 4 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital? 9. Bertelli's is analyzing a project with an initial cost of $55,000 and cash inflows of $33,000 a year for two years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of . 35. The aftertax cost of debt is 6 percent and the cost of equity is 11 percent. The tax rate is 34 percent. What is the projected net present value of this project? 10. Choice Golf Equipment has a beta of 1.2 and a cost of equity of 13 percent. The riskfree rate of return is 4 percent. Choice is considering a project with a beta of .8. What is the appropriate discount rate for the project? 11. Extra Co. maintains a debt-equity ratio of 1 and has a tax rate of 40 percent. The firm does not issue preferred stock. The cost of equity is 12 percent and the before tax cost of debt is 15 percent. What is Abco's weighted average cost of capital? 12. The Quilt Shoppe is an all equity firm that has 2,500 shares of stock outstanding at a market price of $20 a share. Company management has decided to issue $10,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 8.5 percent. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes. 13. Denver Dry Goods has expected earnings before interest and taxes of $14,600, an unlevered cost of capital of 15 percent, and a tax rate of 35 percent. The company also has $3,500 of debt that carries a 6 percent coupon. The debt is selling at par value. What is the value of this firm? 14. Thompson & Jones has earnings before interest and taxes of $149,000. Both the book and the market value of debt is $265,000. The unlevered cost of equity is 13.5 percent while the pre-tax cost of debt is 9 percent. The tax rate is 34 percent. What is Thompson & Jones' weighted average cost of capital? 15. Thompson & Thomson is an all equity firm that has 500,000 shares of stock outstanding. The company is in the process of borrowing $8 million at 9 percent interest to repurchase 200,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes? (hint: with no taxes you are in case I of MM, so the value of the firm doesn't change with capital structure changes!) 16. Your firm has a debt-equity ratio of .75. Your pre-tax cost of debt is 8.5 percent and your required return on assets is 15 percent. What is your cost of equity if you ignore taxes? 17. An unlevered firm has a cost of capital of 16 percent and earnings before interest and taxes of $225,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $850,000 with an 8 percent annual coupon. The applicable tax rate is 34 percent. What is the value of the levered firm? 18. A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,360 and other assets of $6,640. Equity is worth $8,000. The firm has 500 shares of stock outstanding and net income of $600. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed? 19. A firm has a market value equal to its book value. Currently, the firm has excess cash of $2,000 and other assets of $13,000. Equity is worth $15,000. The firm has 1,000 shares of stock outstanding and net income of $2,500. By what percent does the stock price per share change if the firm pays out its excess cash as a cash dividend? (ignore taxes) 20. Prezario's has 225,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $1,690,000. The company just announced a 2-for-1 stock split. By how much does the common stock account balance change after the split

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image
Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Finance Markets, Investments, And Financial Management

Authors: Ronald W. Melicher, Edgar A. Norton

17th Edition

1119561175, 978-1119561170

More Books

Students explore these related Finance questions