BUSI 420 MOD 3 Homework solutions complete answers

BUSI 420 MOD 3 Homework solutions complete answers 

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Suppose the dividends for the Seger Corporation over the past six years were $2.56, $2.64, $2.73, $2.81, $2.91, and $2.96, respectively. Assume that the historical average growth rate will remain the same for 2020. Compute the expected share price at the end of 2020 using the perpetual growth method. Assume the market risk premium is 12.3 percent, Treasury bills yield 4.2 percent, and the projected beta of the firm is .83. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Given the information below for Seger Corporation, compute the expected share price at the end of 2020 using price ratio analysis. Assume that the historical (arithmetic) average growth rates will remain the same for 2020. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $21.00, $15.00, $6.40 and $2.90. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the stock is 18 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Carter Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $3.20 per share in 8 years, and you expect dividends to grow perpetually at 4.2 percent per year thereafter. If the discount rate is 15 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Could I Industries just paid a dividend of $1.97 per share. The dividends are expected to grow at a rate of 18 percent for the next three years and then level off to a growth rate of 7 percent indefinitely. If the required return is 13 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

A certain stock has a beta of 1.55. If the risk-free rate of return is 4.4 percent and the market risk premium is 7.9 percent, what is the expected return of the stock? What is the expected return of a stock with a beta of 1.51? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Johnson Products earned $4.35 per share last year and paid a dividend of $1.70 per share. If ROE was 17 percent, what is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Star Light & Power increases its dividend 2.7 percent per year every year. This utility is valued using a discount rate of 14 percent, and the stock currently sells for $50 per share. If you buy a share of stock today and hold on to it for at least three years, what do you expect the value of your dividend check to be three years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Xytex Products just paid a dividend of $2.02 per share, and the stock currently sells for $30. If the discount rate is 10 percent, what is the dividend growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

If a firm has an EV of $670 million and EBITDA of $203 million, what is its EV ratio? (Round your answer to 2 decimal places.)

 

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.6, a debt-to-equity ratio of .6, and a tax rate of 21 percent. Assume a risk-free rate of 6 percent and a market risk premium of 8 percent. Lauryn’s Doll Co. had EBIT last year of $53 million, which is net of a depreciation expense of $5.3 million. In addition, Lauryn's made $4.75 million in capital expenditures and increased net working capital by $3.1 million. Assume the FCF is expected to grow at a rate of 2 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

Lauryn’s Doll Co. had EBIT last year of $56 million, which is net of a depreciation expense of $5.6 million. In addition, Lauryn’s made $5.3 million in capital expenditures and increased net working capital by $2.7 million. Assume that Lauryn’s has a reported equity beta of 1.7, a debt-to-equity ratio of .4, and a tax rate of 21 percent. What is Lauryn’s FCF for the year?(Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

Lauryn’s asset beta is 1.21. Calculate the appropriate FCF discount rate assuming a risk-free rate of 5 percent and a market risk premium of 8 percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

 

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .8, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn’s? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

JJ Industries will pay a regular dividend of $3.10 per share for each of the next four years. At the end of the four years, the company will also pay out a liquidating dividend of $67 per share, and the company will cease operations. If the discount rate is 11 percent, what is the current value of the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.

 

b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):

 

b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $37, $312, and $94, respectively. If Able undergoes a 3-for-4 reverse stock split, what is the new divisor? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

 

Assume the value-weighted index level was 326.95 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

You find the following order book on a particular stock. The last trade on the stock was at $60.36.

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $49, $200, and $112, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

 

Question 1

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $39, $315, and $116, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

 

Question 2

 

The following order book exists for a particular stock. The last trade on the stock was at $32.09.

 

a.  If you place a market buy order for 100 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

 

b. If you place a market sell order for 200 shares, at what price will it be filled? (Round your answer to 2 decimal places.)

 

c. Suppose you place a market order to buy 350 shares. At what price will it be filled? Choose the appropriate answer.

 

Question 3

 

Assume the following information concerning two stocks that make up an index. What is the price-weighted return for the index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 4

 

Assume the following information concerning two stocks that make up an index. What is the value-weighted return for the index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 5

 

You are given the following information concerning two stocks that make up an index.

 

Assume that you want to reindex with the index value at the beginning of the year equal to 100. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 6

 

You are given the following information concerning two stocks that make up an index.

 

Assume the value-weighted index level was 303.98 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 7

 

You are given the following total market values for an index over a five-year period. Assuming the index starts at 1,000, calculate the index value each year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Question 8

 

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $55, $312, and $92, respectively. If Able undergoes a 3-for-4 reverse stock split, what is the new divisor? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

 

Question 9

 

The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):

 

a. Calculate the initial value of the index if a price-weighting scheme is used.

 

b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Question 10

 

The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.

 

a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.)

 

b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Question 11

 

JJ Industries will pay a regular dividend of $2.90 per share for each of the next four years. At the end of the four years, the company will also pay out a liquidating dividend of $65 per share, and the company will cease operations. If the discount rate is 12 percent, what is the current value of the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 12

 

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.7, a debt-to-equity ratio of 0.7, and a tax rate of 40 percent. Based on this information, what is the asset beta for Lauryn’s? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 13

 

Lauryn’s asset beta is 1.16. Calculate the appropriate FCF discount rate assuming a risk-free rate of 2 percent and a market risk premium of 7 percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

 

Question 14

 

Lauryn’s Doll Co. had EBIT last year of $54 million, which is net of a depreciation expense of $5.4 million. In addition, Lauryn’s made $6.75 million in capital expenditures and increased net working capital by $2.9 million. Assume that Lauryn’s has a reported equity beta of 1.6, a debt-to-equity ratio of 0.9, and a tax rate of 30 percent. What is Lauryn’s FCF for the year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

Question 15

 

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.6, a debt-to-equity ratio of 0.3, and a tax rate of 30 percent. Assume a risk-free rate of 5 percent and a market risk premium of 11 percent. Lauryn’s Doll Co. had EBIT last year of $50 million, which is net of a depreciation expense of $5 million. In addition, Lauryn's made $6.5 million in capital expenditures and increased net working capital by $3.4 million. Assume the FCF is expected to grow at a rate of 3 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

 

Question 16

 

If a firm has an EV of $1,290 million and EBITDA of $282 million, what is its EV ratio? (Round your answer to 2 decimal places.)

 

Question 17

 

Xytex Products just paid a dividend of $2.47 per share, and the stock currently sells for $48. If the discount rate is 12 percent, what is the dividend growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 18

 

Star Light & Power increases its dividend 2.4 percent per year every year. This utility is valued using a discount rate of 11 percent, and the stock currently sells for $47 per share. If you buy a share of stock today and hold on to it for at least three years, what do you expect the value of your dividend check to be three years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 19

 

Johnson Products earned $4.25 per share last year and paid a dividend of $1.60 per share. If ROE was 15 percent, what is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 20

 

A certain stock has a beta of 1.1. If the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent, what is the expected return of the stock? What is the expected return of a stock with a beta of 0.97? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Question 21

 

Could I Industries just paid a dividend of $1.45 per share. The dividends are expected to grow at a rate of 17 percent for the next five years and then level off to a growth rate of 5 percent indefinitely. If the required return is 15 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 22

 

Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $4.40 per share in 12 years, and you expect dividends to grow perpetually at 5.9 percent per year thereafter. If the discount rate is 16 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 23

 

Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $16.00, $10.00, $6.00 and $2.50. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the stock is 10 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 24

 

Given the information below for Seger Corporation, compute the expected share price at the end of 2017 using price ratio analysis. Assume that the historical average growth rates will remain the same for 2017. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Question 25

 

Suppose the dividends for the Seger Corporation over the past six years were $1.17, $1.25, $1.34, $1.42, $1.52, and $1.57, respectively. Assume that the historical average growth rate will remain the same for 2017. Compute the expected share price at the end of 2017 using the perpetual growth method. Assume the market risk premium is 9.6 percent, Treasury bills yield 3.8 percent, and the projected beta of the firm is 0.95. (Do not round intermediate calculations. Round your answer to 2 decimal places.)