Problem 1 (13 marks) The Haliburton Construction Company has common and preferred stock outstanding. The preferred stock pays an annual dividend of $7.50 per share, and the required rate of return for similar preferred stocks is 11%. The common stock paid a dividend of $3.00 per share last year, but the company expected that earnings and dividends will grow by 25% for the next two years before dropping to a constant 9% growth rate afterward. The required rate of return on similar common stocks is 13%. a) What is the per-share value of the company's preferred shares? (2pts) b) What is the per-share value of the company's common stock? (6pts) c) Calculate the expected market price of the share in one year. (3pts) d) Calculate the expected dividend yield and capital gains yield expected at the end of the first year. (2pts) Problem 2 (8 Marks) ABC Corp. is a medium-sized corporation in the paper products industry. It has a corporate tax rate of 35%. For the recent period, the firm's cost of goods sold is $247,000, interest expense is $32,000, depreciation expense is $43,000, and total sales is $586,000. a. If the firm has 85,000 shares outstanding, and if it retains $98,600 of earnings and pays the rest of the earnings as dividends, what is the dividend amount paid per share? Hint: it may be helpful to construct an income statement. (6pts) b. What is the operating cash flow for ABC Corp. for this period? (2pts) Problem 3 (6 Marks) For Belize Inc., the following information is given to you from their financial statements for 2021. 2021 Sales $8,085 Depreciation 1,085 Current assets 20,447 Cost of goods sold 1,942 515 Other expenses Interest 579 Cash 5,000 Notes payable 600 Long-term debt 15,435 Net fixed assets 33,291 Accounts payable 4,025 Inventory 9,555 Dividend 1,011 Accounts Receivables: ?? Owners Equity: ?? Construct the statement of financial position (Balance sheet) for Belize Inc. for the end of 2021 using only some or all the entries provided above. Problem 1 (13 marks) The Haliburton Construction Company has common and preferred stock outstanding. The preferred stock pays an annual dividend of $7.50 per share, and the required rate of return for similar preferred stocks is 11%. The common stock paid a dividend of $3.00 per share last year, but the company expected that earnings and dividends will grow by 25% for the next two years before dropping to a constant 9% growth rate afterward. The required rate of return on similar common stocks is 13%. a) What is the per-share value of the company's preferred shares? (2pts) b) What is the per-share value of the company's common stock? (6pts) c) Calculate the expected market price of the share in one year. (3pts) d) Calculate the expected dividend yield and capital gains yield expected at the end of the first year. (2pts) Problem 2 (8 Marks) ABC Corp. is a medium-sized corporation in the paper products industry. It has a corporate tax rate of 35%. For the recent period, the firm's cost of goods sold is $247,000, interest expense is $32,000, depreciation expense is $43,000, and total sales is $586,000. a. If the firm has 85,000 shares outstanding, and if it retains $98,600 of earnings and pays the rest of the earnings as dividends, what is the dividend amount paid per share? Hint: it may be helpful to construct an income statement. (6pts) b. What is the operating cash flow for ABC Corp. for this period? (2pts) Problem 3 (6 Marks) For Belize Inc., the following information is given to you from their financial statements for 2021. 2021 Sales $8,085 Depreciation 1,085 Current assets 20,447 Cost of goods sold 1,942 515 Other expenses Interest 579 Cash 5,000 Notes payable 600 Long-term debt 15,435 Net fixed assets 33,291 Accounts payable 4,025 Inventory 9,555 Dividend 1,011 Accounts Receivables: ?? Owners Equity: ?? Construct the statement of financial position (Balance sheet) for Belize Inc. for the end of 2021 using only some or all the entries provided above
