Question 1

Haliburton Snowmobiles Inc. is a closely-held corporation which needs to raise funds to purchase a new inventory of sleds. They have a choice of selling preferred shares or common shares.

Common Shares

a) If the firm expects to pay $1.20 in annual dividends this coming year, the growth rate of the dividends is expected to be 4% each year indefinitely, and existing shareholders require a return of 12%, what price can the common shares be sold?

b) If the firm needs to raise $5,000,000, how many common shares do they need to sell?

Preferred Shares

c) One of the existing common shareholders suggested that the firm should explore selling preferred shares, instead of common shares.

i) What would be two advantages to the firm (existing common shareholders) of selling preferred shares instead of common shares?

ii) What would be two disadvantages to the firm of selling preferred shares instead of common shares?

question 2

a) What is Teslas trailing 12-month (TTM) P/E ratio?

b) If the average estimate (Future) EPS for TSLA for 2022 is $9.04 per share, What is Teslas forward-looking P/E ratio, based off of Jan 24, 2022 closing price?

c) As of January 24, 2022, The domestic automotive industrys forward 12 months P/E ratio is 16X and the S&P 500 forward P/E is 19X, then what could be 2 reasons why investors justify paying so much for Tesla?

d) Many investors are claimed that the 2021 P/E ratio of close to 30X looked similar to 2001 when there was the tech bubble crash. One reason provided by many investors was because bond yields were so low. Why would low bond yields justify higher equity prices?