The use of debt in a company’s capital structure can significantly increase a company’s return on equity (ROE). When Macbeth Spot Removers issued $69,600 of debt and used the proceeds to repurchase stock, their return on assets (RA) remained constant at 15%, but their return on equity (RG) increased to 19.4%.
The increase in RG is due to the fact that debt is more risky than equity, so debtholders demand a higher return. This higher return is then partially passed on to the equity holders, resulting in the increased RG. The beta of the unlevered stock was 0.60, and this remained the same after the change to the capital structure.
However, the asset beta (BA) and the equity beta (BE) both increased to 0.60, while the debt beta (BO) decreased to 0.00, since debt does not have any systematic risk associated with it.
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Consider a five year corporate bond with a face value of $1,000. The bond currently pays a coupon of 5% per annum, but there is a chance the bond's issuer may default in five years time (just before the final payments on the bond are paid to bondholders).
There is a 80% chance that the bond will repay all of its cash flows in full, as promised. However, there is a 20% chance that the bond will default, and bondholders will only receive a fraction of the cash flows they were promised. Specifically, if the issuer defaults just before the maturity date of the bond, then bondholders will only receive $0.30 per $1 of cash flows they were promised on the maturity date. Given this default risk, the appropriate discount rate is 9% per annum.
What is the fair price of this corporate bond?
Group of answer choices
1049.14
844.42
1000
748.87
336.71
The fair price of the corporate bond is A)$1049.14
To calculate the fair price of the bond, we need to discount all the expected cash flows of the bond to their present values using the appropriate discount rate.
The bond pays a coupon of 5% per annum on the face value of $1,000, which means a cash flow of $50 per year. The bond matures in five years, and at maturity, the bondholders will receive the face value of $1,000.
Given the default risk of the bond, we need to adjust the expected cash flows by the probability of default and the recovery rate. The probability of default is 20%, and the recovery rate is 30%, which means that bondholders will only receive 30% of the face value if the issuer defaults.
Using the above information, we can calculate the expected cash flows as follows:
Expected cash flow = ($50 x 5 x 0.8) + ($1,000 x 0.8 x 0.2 x 0.3) = $196
Next, we need to discount the expected cash flows to their present values using the appropriate discount rate of 9% per annum. This can be done using the formula:
Present value = Cash flow / (1 + Discount rate) ^ Time
Using this formula, we can calculate the present value of the expected cash flows as follows:
Present value = ($50 / (1 + 0.09) ^ 1) + ($50 / (1 + 0.09) ^ 2) + ($50 / (1 + 0.09) ^ 3) + ($50 / (1 + 0.09) ^ 4) + ($1,196 / (1 + 0.09) ^ 5) = $853.13
Therefore, the fair price of the bond is the present value of the expected cash flows, which is $853.13. However, this price needs to be adjusted for the default risk, which reduces the expected cash flows by 20% x 30% = 6%. Therefore, the fair price of the bond is $853.13 x (1 - 0.06) = A)$1,048.87.
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8. 5 pts. What is the current rate on a bond with a coupon rate of 5% selling at $900? Why is the current rate higher than the coupon rate? Show math for credit.
The current rate on a bond with a coupon rate of 5% selling at $900 can be calculated using the following formula:
Current Rate = Annual Coupon Payment / Bond Price
The annual coupon payment is calculated as 5% of the face value of the bond, which is $1,000 (5% x $1,000 = $50). So, the current rate can be calculated as follows:
Current Rate = $50 / $900 = 5.56%
Therefore, the current rate on a bond with a coupon rate of 5% selling at $900 is 5.56%.
The reason why the current rate is higher than the coupon rate is because the bond is selling at a discount. When a bond sells at a discount, it means that its price is lower than its face value. In this case, the bond is selling at $900, which is $100 less than its face value of $1,000. This is because the market demand for the bond is low, which causes its price to drop.
As a result, investors who purchase the bond at a discount will receive a higher yield than the coupon rate. This is because they are effectively paying less for the bond but will still receive the same coupon payments. In other words, the yield is higher to compensate for the lower price paid for the bond.
In summary, the current rate on a bond with a coupon rate of 5% selling at $900 is 5.56%. The current rate is higher than the coupon rate because the bond is selling at a discount, which causes its yield to increase.
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toldness products, incorporated, has a connector division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the transmission division, in one of its products. data concerning that connector appear below: capacity in units 57,000 selling price to outside customers $ 67 variable cost per unit $ 22 fixed cost per unit (based on capacity) $ 29 the transmission division is currently purchasing 11,000 of these connectors per year from an overseas supplier at a cost of $58 per connector. what is the maximum price that the transmission division should be willing to pay for connectors transferred from the connector division?
Based on the information provided, we can calculate the total cost of producing the standard connector by multiplying the variable cost per unit by the capacity, and adding the fixed cost per unit. The total cost would be $2,235,000 (=$22 x 57,000 + $29 x 57,000).
To determine the maximum price that the transmission division should be willing to pay for connectors transferred from the connector division, we need to compare the cost of purchasing from the overseas supplier with the cost of producing the connector in-house.
If the transmission division were to purchase 11,000 connectors from the connector division, the total cost would be $849,750 (=$2,235,000 / 57,000 x 11,000). Dividing this by the number of units purchased (11,000) gives us a cost per unit of $77.25.
Therefore, the maximum price that the transmission division should be willing to pay for connectors transferred from the connector division is $77.25. Any higher price would result in the transmission division paying more than it currently does to the overseas supplier.
In conclusion, it would make sense for the transmission division to purchase connectors from the connector division if the price is lower than $77.25 per unit.
This would not only save the transmission division money, but it would also benefit the company as a whole by promoting inter-divisional cooperation and reducing dependence on overseas suppliers.
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simple interest is computed by multiplying which of the following? (select all that apply.) multiple select question. accumulated interest initial investment period of time applicable interest rate
Simple interest is computed by multiplying the initial investment, the period of time, and the applicable interest rate.
Simple interest is a calculation of interest that does not take into account any compounding of interest over time. It is computed by multiplying the initial investment by the applicable interest rate and the period of time for which the interest is being calculated.
The result is the accumulated interest that is earned over that period of time. This calculation is simple and straightforward, which is why it is called "simple" interest. It is commonly used in loans, savings accounts, and other financial transactions where the interest rate is fixed and the interest is not compounded.
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Omni Enterprises is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement. If it purchases the asset, the cost will be $22,000. It can borrow funds for four years at 8 percent interest. The asset will qualify for a 25 percent CCA. Assume a tax rate of 35 percent. The other alternative is to sign two operating leases, one with payments of $6,000 for the first two years and the other with payments of $8,000 for the last two years. The leases would be treated as operating leases. a. Compute the aftertax cost of the lease for the four years. (Negative answers should be indicated by a minus sign. Round the final answers to nearest whole dollar.) Year Aftertax cost 0 $ 1 2 3 4
The total aftertax cost of leasing the asset for four years is: Total aftertax cost: $3,900 + $3,900 + $5,200 + $5,200 = $18,200
To compare the aftertax cost of purchasing the asset versus leasing it, we need to calculate the aftertax cost of each option.
If Omni Enterprises purchases the asset, it can claim CCA of 25% on the cost of the asset, which will reduce its taxable income. Therefore, the aftertax cost of purchasing the asset can be calculated as:
Cost of asset: $22,000
CCA (25% of cost): $5,500
Taxable income: $22,000 - $5,500 = $16,500
Tax at 35%: $5,775
Aftertax cost: $22,000 + $5,775 = $27,775
If Omni Enterprises leases the asset, the aftertax cost of the lease for each year can be calculated as follows:
Year 1: $6,000
Tax deduction (lease payment): $6,000
Tax savings (at 35%): $2,100
Aftertax cost: $6,000 - $2,100 = $3,900
Year 2: $6,000
Tax deduction (lease payment): $6,000
Tax savings (at 35%): $2,100
Aftertax cost: $6,000 - $2,100 = $3,900
Year 3: $8,000
Tax deduction (lease payment): $8,000
Tax savings (at 35%): $2,800
Aftertax cost: $8,000 - $2,800 = $5,200
Year 4: $8,000
Tax deduction (lease payment): $8,000
Tax savings (at 35%): $2,800
Aftertax cost: $8,000 - $2,800 = $5,200
Therefore, the total aftertax cost of leasing the asset for four years is:
Total aftertax cost: $3,900 + $3,900 + $5,200 + $5,200 = $18,200
Comparing the aftertax cost of purchasing the asset ($27,775) with the aftertax cost of leasing the asset ($18,200), it is cheaper to lease the asset under the given conditions.
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A stock recently paid a $2/share dividend. They will grow this dividend by 10%/year in each of the next 3 years. Afterward, they will maintain a zero growth dividend policy, forever. R=15%. Calculate the stock price.
QUESTION 3 A stock recently paid a $2/share dividend. They will grow this dividend by 10%/year in each of the next 3 years. Afterward, they will maintain a zero growth dividend policy, forever. R=15%. Calculate the stock price.
The stock price is $18.32.
To calculate this, we must first find the present value of the growing dividends and the present value of the constant dividends.
Step 1: Calculate the dividends for the next 3 years with 10% growth.
Year 1: $2 * 1.10 = $2.20
Year 2: $2.20 * 1.10 = $2.42
Year 3: $2.42 * 1.10 = $2.66
Step 2: Find the present value of these growing dividends.
PV_Year1 = $2.20 / (1+0.15)¹ = $1.91
PV_Year2 = $2.42 / (1+0.15)² = $1.82
PV_Year3 = $2.66 / (1+0.15)³= $1.69
Step 3: Calculate the present value of constant dividends from Year 4 onwards.
Constant dividend (D) = $2.66 (Year 3 dividend)
Discount rate (R) = 15%
PV_constant_dividends = D / R = $2.66 / 0.15 = $17.73
Step 4: Calculate the present value of the constant dividends in Year 3.
PV_Year3_constant_dividends = $17.73 / (1+0.15)³ = $11.27
Step 5: Add the present values to find the stock price.
Stock price = PV_Year1 + PV_Year2 + PV_Year3 + PV_Year3_constant_dividends = $1.91 + $1.82 + $1.69 + $11.27 = $18.32
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If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) will WiseGuy Inc. prefer? Project A Project B
Time 0 -10000 -10000
Time 1 5000 4000
Time 2 4000 3000
Time 3 3000 10000
a) Project A b) Project B c) Project A and Project B have the same ranking. d) Cannot calculate a payback period without a discount rate If WiseGuy Inc. uses IRR rule to choose projects, which of the projects (Project A or Project B) will rank highest? a) Project A b) Project B c) Project A and Project B have the same ranking. d) Cannot calculate an IRR without a discount rate
WiseGuy Inc. would prefer Project B, as it has a shorter payback period of 1.3 years compared to Project A's payback period of 3.25 years.
How can we decide which projects (Project A or Project B) WiseGuy Inc. will prefer?To determine which project WiseGuy Inc. will prefer using the payback period rule, we need to calculate the payback period for each project. The payback period is the amount of time it takes for a project to recoup its initial investment.
For Project A:
Payback period = 2 years + ((10000-5000)/4000) years
Payback period = 3.25 years
For Project B:
Payback period = 1 year + ((10000-4000-3000)/10000) years
Payback period = 1.3 years
According to the payback period rule, WiseGuy Inc. would prefer Project B, as it has a shorter payback period of 1.3 years compared to Project A's payback period of 3.25 years. This means that WiseGuy Inc. will recoup its initial investment in Project B sooner, making it a more attractive option.
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informational control and behavioral control are two central aspects of blank control. multiple choice question. environmental operational physical strategic need help? review
Informational control and behavioral control are two central aspects of "strategic control". Option d is answer.
Strategic control is a process of monitoring and adjusting the strategic direction of an organization. It involves setting goals, developing plans, and implementing strategies to achieve those goals. Informational control and behavioral control are two important components of strategic control.
Informational control refers to the use of information and data to monitor and evaluate the organization's performance. This includes collecting and analyzing information about the internal and external environment, as well as the organization's own activities and outcomes.
Behavioral control, on the other hand, involves influencing the behavior of individuals and groups within the organization to ensure that they are aligned with the organization's strategic goals and objectives. This includes setting expectations, providing feedback, and rewarding or punishing behavior as appropriate.
Together, informational control and behavioral control help to ensure that the organization's strategies are effective and that the organization is making progress towards its goals.
Option d is answer.
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A firm issues ten-year bonds with a coupon rate of 6.5%, paid semiannually. The credit spread for this firm's ten-year debt is 0.8%. New ten-year Treasury notes are being issued at par with a coupon rate of 3.5%. What should the price of the firm's outstanding ten-year bonds bo per $100 of face value? A. $94.18 B. $164.82 C. $141.27 D. $117.73
The calculated present value, which is the price of the firm's outstanding ten-year bonds per $100 of face value, is $117.73 (rounded to two decimal places). Therefore, the correct option is (D).
To find the price of the firm's outstanding ten-year bonds per $100 of face value, we need to consider the given terms: coupon rate, credit spread, and Treasury notes coupon rate.
1. The firm's ten-year bonds have a coupon rate of 6.5% paid semiannually, which means that each payment is 3.25% (6.5%/2).
2. The credit spread for the firm's ten-year debt is 0.8%, which represents the additional yield investors require for holding the firm's debt instead of a risk-free Treasury note.
3. The ten-year Treasury notes are issued at par with a coupon rate of 3.5%.
To determine the yield to maturity (YTM) of the firm's bonds, we add the Treasury notes coupon rate and the credit spread: 3.5% + 0.8% = 4.3%.
Since the bond pays semiannually, we need to halve the YTM: 4.3%/2 = 2.15%.
Now, we can calculate the present value of the firm's bond cash flows. The bond has 20 payments (10 years x 2 payments per year) of $3.25 and a face value of $100.
Using a financial calculator or spreadsheet, we can compute the present value of the bond with the following parameters:
- n = 20 periods
- i = 2.15% per period
- PMT = $3.25 (coupon payment)
- FV = $100 (face value)
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A potato farmer needs to buy a new harvester Two types have performed satisfactorily in field trials The SpudFinder costs $100.000 and should last for five years. The Tater Taker also costs $100,000 but requires an extra operator at $20,000 per season. This machine has a service life of seven years. The salvage value of either machine is insignificant.If the farmer requires a 7% return on investment, which harvester should she buy?
Since the NPV of the Tater Taker is higher than that of the SpudFinder, the potato farmer should buy the Tater Taker harvester.
To determine which harvester the potato farmer should buy, we need to calculate the net present value (NPV) of each option. The NPV takes into account the initial investment, cash inflows, and outflows over the machine's lifespan discounted to the present value using the required rate of return.
For the SpudFinder harvester, the initial investment is $100,000, and it has a lifespan of five years. Assuming no additional operating costs, the annual cash inflows from the harvester are:
Year 1: $25,000
Year 2: $25,000
Year 3: $25,000
Year 4: $25,000
Year 5: $25,000
Using a discount rate of 7%, we can calculate the NPV of the SpudFinder as follows:
NPV = -$100,000 + $25,000/(1+0.07)^1 + $25,000/(1+0.07)^2 + $25,000/(1+0.07)^3 + $25,000/(1+0.07)^4 + $25,000/(1+0.07)^5
NPV = -$13,516.27
For the Tater Taker harvester, the initial investment is also $100,000, but it requires an additional operator costing $20,000 per year for seven years. The annual cash inflows from the harvester are:
Year 1: $25,000
Year 2: $25,000
Year 3: $25,000
Year 4: $25,000
Year 5: $25,000
Year 6: $25,000
Year 7: $25,000
Using a discount rate of 7%, we can calculate the NPV of the Tater Taker as follows:
NPV = -$100,000 - $20,000 + $25,000/(1+0.07)^1 + $25,000/(1+0.07)^2 + $25,000/(1+0.07)^3 + $25,000/(1+0.07)^4 + $25,000/(1+0.07)^5 + $25,000/(1+0.07)^6 + $25,000/(1+0.07)^7
NPV = -$4,712.59
Since the NPV of the Tater Taker is higher than that of the SpudFinder, the potato farmer should buy the Tater Taker harvester. Even though it requires an extra operator, the longer lifespan and additional cash inflows outweigh the additional cost.
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daily demand for newspapers for the last 10 days has been as follows: 12, 13, 16, 15, 12, 18, 14, 12, 13, 15 (listed from oldest to most recent). what are the forecast sales for the next day using a three-day weighted moving average where the weights are 3, 1, and 1 (the highest weight is for the most recent number)?
The forecast sales for the next day using a three-day weighted moving average where the weights are 3, 1, and 1 would be 13.
To use a three-day weighted moving average, we need to take the last three observations and multiply them by the respective weights (3, 1, 1) and add them together. Then we divide the result by the sum of the weights, which is 5 in this case.
So, for the last three days (i.e., days 8, 9, and 10), we have:
Day 8: 12 x 3 = 36
Day 9: 13 x 1 = 13
Day 10: 15 x 1 = 15
Total: 36 + 13 + 15 = 64
Forecasted sales for the next day would be 64 / 5 = 12.8, which we can round off to 13.
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dormer is the only fine dining restaurant in a small town. the opening of a new restaurant is viewed as a threat by some of the employees at dormer. others see it as an opportunity for dormer to strengthen itself by looking out for its weaknesses and ironing them out. this is an example of strategy as:
Dormer is the only fine dining restaurant in a small town. The opening of a new restaurant is viewed as a threat by some of the employees at dormer by looking out for its weaknesses and ironing them out. This is an example of strategy as "SWOT analysis".
The SWOT analysis which involves assessing an organization's internal strengths and weaknesses as well as external opportunities and threats.
In this case, the opening of a new restaurant in the town presents an external threat to Dormer, the only fine dining restaurant in the area. Some of the employees at Dormer view this as a threat and are worried about the impact it could have on their business.
By conducting a SWOT analysis, Dormer can identify its internal strengths and weaknesses and external opportunities and threats. Based on this analysis, Dormer can develop strategies to leverage its strengths, address its weaknesses, capitalize on opportunities, and mitigate threats to maintain its competitive advantage in the market.
Therefore, this is an example of strategy as SWOT analysis.
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Ronstadt Drum Company earned $710 million last year and paid out 25 percent of earnings in dividends. a. By how much did the company's retained earnings increase? (Do not round intermediate calculatio ns. Round the final answer to 1 decimal places. Enter the answer in millions. Omit $ sign in your response.) Addition to retained earnings $ million b. With 85 million shares outstanding and a share price of $40, what was the dividend yield? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Omit $ sign in your response.) Dividend yield %
a. The company's retained earnings increased by $532.5 million. b. The dividend yield is 5.22%.
a. To calculate the increase in retained earnings for Ronstadt Drum Company, first, find the total dividends paid by multiplying the earnings by the dividend payout ratio. Then, subtract the dividends from the total earnings to find the addition to retained earnings.
1: Calculate total dividends paid
Total dividends paid = Earnings * Dividend payout ratio
Total dividends paid = $710 million * 25%
Total dividends paid = $177.5 million
2: Calculate the addition to retained earnings
Addition to retained earnings = Total earnings - Total dividends paid
Addition to retained earnings = $710 million - $177.5 million
Addition to retained earnings = $532.5 million
b. To calculate the dividend yield, divide the total dividends paid per share by the share price.
1: Calculate dividends per share
Dividends per share = Total dividends paid / Number of shares outstanding
Dividends per share = $177.5 million / 85 million shares
Dividends per share = $2.0882 (rounded to 4 decimal places)
2: Calculate dividend yield
Dividend yield = Dividends per share / Share price
Dividend yield = $2.0882 / $40
Dividend yield = 0.0522
Convert to percentage: 0.0522 * 100 = 5.22%
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A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,199.90, and currently sell at a price of $1,349.76. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.
YTM: %
YTC: %
What return should investors expect to earn on these bonds?
A: Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
B: Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
C: Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
D: Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM
The right response is: A. Because the YTC is higher than the YTM, investors would anticipate that the bonds would be called and earn the YTC.
How much nominal yield is there until maturity?The interest rate on the bond is shown by its nominal yield. Periodically up until the date of maturity, interest payments are made to the investor. A coupon yield is another name for nominal yield. To determine the bond's coupon yield, divide the annual interest payment by the bond's face value.
How is the nominal yield on a callable bond determined?The nominal yield, which represents the stated yield for a bond, is a fixed percentage figure determined for fixed income securities. It is computed by dividing the bond's face value by the annual interest payments.
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a change in the money supply will be the least effective when the money demand curve is relatively:
The money supply refers to the amount of money that is in circulation in an economy. It includes physical currency as well as bank deposits and other liquid assets.
However, the effectiveness of a change in the money supply depends on the state of the money demand curve. The money demand curve shows the relationship between the demand for money and the interest rate. When the interest rate is high, the demand for money tends to be low, and vice versa.
If the money demand curve is relatively flat, meaning that a change in the interest rate has little effect on the demand for money, then a change in the money supply will be the least effective. This is because a change in the money supply will not have much impact on the interest rate, which is the key variable that affects economic activity.
Overall, the effectiveness of a change in the money supply depends on the state of the money demand curve. When the money demand curve is relatively flat, a change in the money supply will be the least effective in affecting economic activity.
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marine international tries decide whether to produce the filter system in-house or sign an outsourcing contract with bayfront manufacturing. to establish a filter system production area at marine international, the fixed cost is $300,000 per year and the company estimates their variable cost of production in-house at $14 per filter system. if marine outsources the production of the filter system to bayfront, bayfront will charge marine $30 per filter system. what is the break-even quantity that marine international can produce in-house or outsource the filter system from bayfront manufacturing? a. 18,740 filter systems b. 18,750 filter systems c. 18,760 filter systems d. 18,770 filter systems e. 18,780 filter systems
The break-even quantity for Marine International is 18,750 filter systems. This means that if they produce more than 18,750 filter systems in-house, it will be more cost-effective to produce them in-house rather than outsourcing from Bayfront Manufacturing. If they produce less than 18,750 filter systems, it will be more cost-effective to outsource from Bayfront Manufacturing.
To determine the break-even quantity, we need to find the point where the cost of producing in-house is equal to the cost of outsourcing from Bayfront Manufacturing. We can set up an equation to represent this:
$300,000 + $14q = $30q
where q is the quantity of filter systems produced.
To solve for q, we can start by isolating q on one side of the equation:
$300,000 = $16q
q = $300,000 / $16
q = 18,750
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This question point posible Next question Shatin Intl has 9.8 milion shares an equity cost of capital of 13.1% and is expected to pay a total dividend of $206 millor actor increasing its dividend, it will keep it constant and will startopurchasing 395 million of stock cach year as wil What is your attivare of Shat's so primo Seomet test The stock price will be Round to the nearest cont.)
The stock price of Shatin Intl, rounded to the nearest cent, is $160.31.Shatin Intl, which has 9.8 million shares, an equity cost of capital of 13.1%, and is expected to pay a total dividend of $206 million before starting to purchase $395 million worth of stock each year.
You'd like to know the stock price, rounded to the nearest cent.
To find the stock price, follow these steps:
1. Calculate the dividend per share: Divide the total dividend ($206 million) by the number of shares (9.8 million).
Dividend per share = $206 million / 9.8 million = $21.02
2. Calculate the dividend yield: Divide the dividend per share ($21.02) by the stock price (let's call it "P").
Dividend yield = $21.02 / P
3. Use the dividend discount model: The stock price (P) equals the dividend per share ($21.02) divided by the equity cost of capital (13.1%). P = $21.02 / 0.131
4. Solve for the stock price (P): P = $160.31
So, the stock price of Shatin Intl, rounded to the nearest cent, is $160.31.
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Based on the given information, the estimated stock price of Shatin Intl is $209.58 per share (rounded to the nearest cent).
Dividend per share = Total dividend / Number of shares
Dividend per share = $206 million / 9.8 million shares
Dividend per share = $21.02
Growth rate = (Net income - Dividends) / (Share price x Number of shares)\
Growth rate = ($500 million - $206 million) / ($50 x 9.8 million)
Growth rate = 3.06%
Finally, we can use the dividend discount model to estimate the stock price:
Stock price = Dividend per share / (Cost of equity - Growth rate)
Stock price = $21.02 / (0.131 - 0.0306)
Stock price = $21.02 / 0.1004
Stock price = $209.58
A stock price is the current market value of a company's stock share. It is determined by the supply and demand of the stock on a given day and is influenced by a variety of factors including company performance, industry trends, economic conditions, and investor sentiment. When a company goes public, it sells shares of its stock to investors in order to raise capital. The value of those shares is determined by the market and can fluctuate on a daily basis based on a variety of factors.
Investors buy and sell shares of stock in order to profit from changes in the stock price. If they buy shares at a lower price and sell them at a higher price, they profit. If they buy shares at a higher price and sell them at a lower price, they incur a loss. Overall, stock prices play a crucial role in the world of business and finance, as they can impact the success of companies and the portfolios of investors.
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How many rotations per minute does a prophy cup provide? A. 1,000 to 3,000. B. 2, 000 to 4,000. C. 3,000 to 5,000. D. 4,000 to 6,000.
A prophy cup provides 2, 000 to 4,000 rotations per minute. The answer is B.
A prophy cup is a device used in dental cleaning procedures to remove stains and plaque from teeth. It is attached to a low-speed handpiece and is used in conjunction with a prophylaxis paste or polishing agent.
The prophy cup rotates in a circular motion to apply the polishing agent to the teeth and scrub away any buildup.
The speed of the prophy cup is measured in rotations per minute (RPM). Generally, prophy cups operate at low speeds compared to other dental instruments. The range of rotations per minute for a prophy cup can vary depending on the model and manufacturer.
However, the most common range of rotations per minute for a prophy cup is between 2,000 to 4,000 RPM.
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this morning, mary bought a ten-year, $1000 par value bond with an 8.25% coupon rate and semi-annual payments. she paid $1082.62 for the bond. if the market interest rate on this type of bond decreases to 6.98% tonight, how much will mary receive for her first coupon payment?
Mary will receive a coupon payment of $39.96 for the first six months of owning the bond.
To calculate the amount Mary will receive for her first coupon payment, we need to determine the coupon payment amount and the number of days until the first coupon payment.
First, let's calculate the coupon payment amount:
The annual coupon payment is 8.25% of the $1000 par value, which is $82.50.
Since the coupon payments are semi-annual, Mary will receive half of the annual coupon payment every six months. Therefore, her semi-annual coupon payment will be $41.25 ($82.50 / 2).
Next, we need to determine the number of days until the first coupon payment. Since Mary bought the bond today, she will receive the first coupon payment in six months (i.e., 180 days).
Now that we have the coupon payment amount and the number of days until the first coupon payment, we can calculate the present value of the coupon payment using the formula for the present value of a single sum:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.
In this case:
FV = $41.25 (the coupon payment amount)
r = 6.98% / 2 = 3.49% (since the coupon payments are semi-annual)
n = 1 (since the coupon payment is in six months)
Plugging in these values, we get:
PV = $41.25 / (1 + 0.0349)^1
PV = $39.96
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what is the expected dollar rate of return on euro deposits it today's exchange rate is $1.167 per euro, next year's expected exchange rate is $1.10 per euro
The expected dollar rate of return on Euro deposits, today's exchange rate of $1.167 per Euro, and next year's expected exchange rate of $1.10 per Euro is -5.74%.
To calculate the expected dollar rate of return on Euro deposits, you need to consider today's exchange rate and next year's expected exchange rate. Here's a step-by-step explanation:
1. Today's exchange rate: $1.167 per Euro.
2. Next year's expected exchange rate: $1.10 per Euro.
3. Calculate the difference in exchange rates: $1.10 - $1.167 = -$0.067.
4. Divide the difference by today's exchange rate: -$0.067 / $1.167 = -0.0574.
5. Multiply the result by 100 to convert it to a percentage: -0.0574 * 100 = -5.74%.
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What is the coupon rate of a two-year, $10,000 bond with semiannual coupons and a price of $9,535.91, if it has a yield to maturity of 6.8%? ... A. 5.991% B. 5.135% C. 4.279% D. 3.423%
The coupon rate of a two-year, $10,000 bond with semiannual coupons and a price of $9,535.91, if it has a yield to maturity of 6.8%, is 5.135%.
The coupon rate is the total amount of interest the bond pays out over the course of its life, expressed as a percentage of the principal, or the original amount the bond was issued for.
To calculate the coupon rate, divide the total interest payments (semiannual coupon payments) by the principal. In this case, the coupon rate is 5.135%, which is calculated by dividing the total interest payments of $515.91 by the principal of $10,000.
This coupon rate is lower than the yield to maturity of 6.8%, which means that, with the given price, the bond is trading at a discount compared to its face value.
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Fool’s Fuel is the only gas station in town. There is not another gas station within 50 miles, making Fool’s Fuel a monopoly. It faces the following demand, P(Q) = 20 – Q, where Q is litters of gasoline, and a cost of C(Q) = 2Q + ¼Q2 + 6. a) What quantity will this monopoly choose and what price would it charge per litter? b) What price and quantity would a competitive market reach. Show this on a well labeled graph. c) How much producer surplus will this monopoly make. Show this on your graph. d) How much deadweight loss will this monopoly create. Show this on your graph.
a) Q=6.67 litres and $13.33 per litre
b) Q=10 litres and $10 per litre
c) The producer surplus for this monopoly is $33.34
d) The deadweight loss is -$11.08
a) As a monopoly, Fool’s Fuel will aim to maximize its profit. To do so, it will choose the quantity where its marginal revenue (MR) equals its marginal cost (MC). The marginal revenue for this monopoly is given by MR(Q) = 20 - 2Q, while the marginal cost is given by MC(Q) = 2 + ½Q. Setting MR equal to MC, we get:
20 - 2Q = 2 + ½Q
Solving for Q, we get Q = 6.67 liters. Plugging this value into the demand equation, we get the price charged by Fool’s Fuel:
P(Q) = 20 – Q = 20 – 6.67
= $13.33 per liter.
Therefore, this monopoly will choose to produce and sell 6.67 liters of gasoline at a price of $13.33 per liter.
b) In a competitive market, the price and quantity are determined by the intersection of the demand and supply curves. However, in this case, we do not have a supply curve, so we need to assume one.
Let’s assume that the supply curve for gasoline is given by the same cost function as the monopoly,
C(Q) = 2Q + ¼Q2 + 6.
The market demand is the same as the monopoly, P(Q) = 20 – Q. Setting demand equal to supply, we get:
20 – Q = 2Q + ¼Q2 + 6
Solving for Q, we get Q = 10 liters.
Plugging this value into the demand equation, we get the market price:
P(Q) = 20 – Q = 20 – 10
= $10 per liter.
Therefore, in a competitive market, the quantity produced and sold would be 10 liters at a price of $10 per liter.
c) The producer surplus for the monopoly is the difference between the price it charges and the marginal cost of production, integrated over the quantity produced. In this case, we can use the formula for the area of a triangle to calculate the producer surplus:
Producer surplus = (P – MC) * Q / 2
At the monopoly quantity of 6.67 liters, the marginal cost is MC(6.67) = 2 + ½ * 6.67
= $5.
The price charged by the monopoly is $13.33. Plugging these values into the formula, we get:
Producer surplus = (13.33 – 5) * 6.67 / 2
= $33.34
Therefore, the producer surplus for this monopoly is $33.34.
d) Deadweight loss is the loss of economic efficiency that occurs when the monopoly reduces output and increases price compared to a perfectly competitive market. In this case, we can calculate the deadweight loss as the difference between the consumer surplus and the producer surplus, integrated over the quantity produced.
The consumer surplus is the area under the demand curve and above the price charged by the monopoly. At the monopoly quantity of 6.67 liters, the price charged is $13.33. The demand equation is P(Q) = 20 – Q. Plugging these values into the formula for the area of a triangle, we get:
Consumer surplus = (20 – 13.33) * 6.67 / 2
= $22.26
Therefore, the deadweight loss is:
Deadweight loss = Consumer surplus – Producer surplus
Deadweight loss = $22.26 - $33.34
= -$11.08
This negative value indicates that there is actually a net gain in economic efficiency due to the monopoly, rather than a loss. This may seem counterintuitive, but it occurs because the monopoly is able to produce at a lower cost than a competitive market due to economies of scale.
However, there is still a transfer of surplus from consumers to producers, which is a social welfare loss.
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Joseph Sports Equipment, Inc., is considering a switch to level production. Under level production, cost efficiencies would occur and aftertax costs would decline by $35,000, but inventory would increase by $400,000. Joseph would have to finance the extra inventory at a cost of 10.5 percent. a. Should the company go ahead and switch to level production? | Switch to level production Don't switch to level production b. How low would interest rates need to fall before level production would be feasible? (Round your final answer to 2 decimal places.) Interest rate 1%
The interest rate would need to fall to 8.75% before level production becomes feasible.
To determine whether Joseph Sports Equipment, Inc. should switch to level production, we need to compare the cost savings with the increased financing costs. Cost savings from level production: $35,000Financing cost of extra inventory: $400,000 x 10.5% = $42,000Since the financing cost ($42,000) is greater than the cost savings ($35,000), the company should not switch to level production.b. To find the interest rate at which level production would be feasible, we need to equate the cost savings with the financing cost of extra inventory.
$35,000 = $400,000 x interest rate.Interest rate = $35,000 / $400,000 = 0.0875Converting to a percentage and rounding to 2 decimal places, the interest rate would need to fall to 8.75% before level production becomes feasible.
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a project will generate a $1 million net cash flow annually in perpetuity. if the project costs $7 million, what is the break-even wacc? group of answer choices 13.33% 12.08% 14.29% 16.67%
The break-even WACC for the project is approximately 14.29%.
To find the break-even WACC (Weighted Average Cost of Capital) for a project, we need to calculate the point at which the present value of cash flows equals the initial cost of the project. Here's a step-by-step explanation:
1. We are given that the project will generate $1 million net cash flow annually in perpetuity.
2. The project costs $7 million.
3. To find the break-even WACC, we'll use the formula for the present value of a perpetuity:
PV = C / r
Where:
- PV is the present value of the perpetuity (cash flows),
- C is the annual cash flow, and
- r is the WACC (break-even point).
4. We want to find the break-even WACC (r) where the present value of cash flows (PV) equals the project cost ($7 million). So, we can rewrite the formula as:
$7 million = $1 million / r
5. Solve for r:
r = $1 million / $7 million
r ≈ 0.1429 or 14.29%
So, the break-even WACC for the project is approximately 14.29%. Out of the given answer choices, 14.29% is the correct answer. This means that if the project's WACC is 14.29%, the net present value of the project will be zero, making it a break-even investment.
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The break-even Weighted Average Cost of Capital (WACC) can be calculated by dividing the cost of the project by the present value of the perpetuity cash flow.
Therefore, the break-even WACC for this project is Break-even WACC = Project Cost / Present Value of perpetuity cash flow Using the perpetuity formula, the present value of the perpetuity cash flow is calculated as: Present Value = Annual Cash Flow / Discount Rate Since the project generates a net cash flow of $1 million annually in perpetuity, the present value of the cash flow can be calculated using a discount rate equal to the break-even WACC as follows: $1,000,000 / Break-even WACC = Present Value Substituting $7 million for the project cost, and solving for the break-even WACC: $7,000,000 / Present Value = $1,000,000 / Break-even WACC Break-even WACC = ($1,000,000 / $7,000,000) * 100 Break-even WACC = 14.29% Therefore, the break-even WACC for this project is 14.29%.
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b. after receiving the second coupon payment (at the end of the second year), arjay decides to sell his bond in the bond market. what price can he expect for his bond if the one-year interest rate at that time is 3 percent? 8 percent? 10 percent?
If the one-year interest rate is 3 percent, Arjay can expect to sell his bond for $1,027.18, if the one-year interest rate is 8 percent, he can expect to sell it for $935.26, and if the one-year interest rate is 10 percent, he can expect to sell it for $881.35.
To determine the price that Arjay can expect to sell his bond for, we need to calculate the bond's current market value using the prevailing interest rates. The current market value of a bond is the present value of its future cash flows, which include both the remaining coupon payments and the principal repayment.
Let's assume the following details for the bond:
Face value = $1,000
Coupon rate = 6%
Coupon payments = $60 per year (=$1,000 x 6%)
Time to maturity = 3 years
Using these details, we can calculate the present value of the bond's cash flows at different interest rates:
If the one-year interest rate is 3 percent:
To calculate the bond price, we need to discount each cash flow by the corresponding discount factor. The discount factor for year 1 is 1/(1+3%) = 0.9709, for year 2 is 1/(1+3%)^2 = 0.9426, and for year 3 is 1/(1+3%)^3 = 0.9151.
Therefore, the current market value of the bond at a 3% interest rate would be:
Bond price = (60 x 0.9709) + (60 x 0.9426) + (1,060 x 0.9151) = $1,027.18
If the one-year interest rate is 8 percent:
Using the same methodology, we can calculate the present value of the bond's cash flows at an 8% interest rate:
Discount factor for year 1 = 1/(1+8%) = 0.9259
Discount factor for year 2 = 1/(1+8%)^2 = 0.8573
Discount factor for year 3 = 1/(1+8%)^3 = 0.7938
Therefore, the current market value of the bond at an 8% interest rate would be:
Bond price = (60 x 0.9259) + (60 x 0.8573) + (1,060 x 0.7938) = $935.26
If the one-year interest rate is 10 percent:
Using the same methodology, we can calculate the present value of the bond's cash flows at a 10% interest rate:
Discount factor for year 1 = 1/(1+10%) = 0.9091
Discount factor for year 2 = 1/(1+10%)^2 = 0.8264
Discount factor for year 3 = 1/(1+10%)^3 = 0.7513
Therefore, the current market value of the bond at a 10% interest rate would be:
Bond price = (60 x 0.9091) + (60 x 0.8264) + (1,060 x 0.7513) = $881.35
Therefore, if the one-year interest rate is 3 percent, Arjay can expect to sell his bond for $1,027.18, if the one-year interest rate is 8 percent, he can expect to sell it for $935.26, and if the one-year interest rate is 10 percent, he can expect to sell it for $881.35.
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if the market price is $84.70 per bushel of wheat, and ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run?
Ali should produce 64.70 bushels of wheat per month to maximize his profits in the short run. At this level of output, his total revenue would be $5,481.59 (64.70 x $84.70), and his total cost would be $2,918.45 (20 x 64.70 + 0.5 x 64.70^2), resulting in a profit of $2,563.14.
To maximize his profits, Ali should produce the level of output where his marginal revenue (MR) equals his marginal cost (MC). In other words, he should produce until the additional revenue from selling one more unit of output is equal to the additional cost of producing one more unit of output.Given the market price of $84.70 per bushel of wheat, Ali's marginal revenue is also $84.70.
To determine his marginal cost, we need to know his total cost function. Let's assume that Ali's total cost function is given by TC = 20Q + 0.5Q^2, where Q is the quantity of wheat produced.
To find Ali's marginal cost, we take the derivative of the total cost function with respect to Q:
MC = dTC/dQ = 20 + Q
Setting MR = MC, we have:
84.70 = 20 + Q
Q = 64.70
Resulting in a profit of $2,563.14.
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suppose you are a risk-averse person that does not like volatile returns. stock a offers a steady return of 5% per year. stock b offers a 3% return with 50% probability and a 10% return with 50% probability. which stock do you prefer?
As a risk-averse person, I would prefer the steady return offered by stock A at 5% per year.
As a risk-averse person who does not like volatile returns, you would prefer a stock with a steady return rather than one with more variability. In this case, stock A offers a steady return of 5% per year, while stock B offers a range of returns, with a 50% chance of a 3% return and a 50% chance of a 10% return.
The expected return of stock B is calculated as follows:
Expected return of stock B = (0.5 x 3%) + (0.5 x 10%) = 6.5%
However, the expected return does not take into account the variability of returns. Given that you are risk-averse, the potential for a 3% return would not be appealing, even with a 50% chance of getting a higher return. Therefore, you would prefer the steady return of 5% offered by stock A.
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Pharmaceutical giant Eli Lilly and Belgium-based company Galapagos have a ____whereby they both work together to develop a new drug for osteoporosis.
- joint diversification
- divestment - strategic alliance - global integration
Pharmaceutical giant Eli Lilly and Belgium-based company Galapagos have a strategic alliance whereby they both work together to develop a new drug for osteoporosis. The correct option is strategic alliance.
In this strategic alliance, both companies collaborate and share resources, knowledge, and expertise to achieve a common goal: creating an effective treatment for osteoporosis. This partnership allows each company to benefit from the other's strengths, such as research capabilities, market reach, and technological advancements.
By joining forces, Eli Lilly and Galapagos can pool their resources to accelerate the drug development process and improve the chances of successfully bringing a new drug to market. This alliance is mutually beneficial and enables both companies to potentially gain a competitive edge in the pharmaceutical industry. Through their strategic alliance, Eli Lilly and Galapagos aim to make a meaningful impact on the lives of those suffering from osteoporosis by providing an effective treatment option. The correct option is strategic alliance.
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when performing a retrospective for a project, whoever is performing the retrospective needs to be perceived as being independent and unbiased. question 40 options: true false
Whenever a retrospective is conducted for a project, the person doing the retrospective has to be seen as impartial and objective. True.
Anytime your team considers the past to enhance the present, it is a retrospective. You can retro on almost anything thanks to the technical and non-technical personnel! A public retrospective on agile software development is now being held.
You must be completely fair in order to be unbiased; you cannot favor someone or hold beliefs that can skew your judgment. For instance, in order to be as objective as possible, the identities of the artists, as well as the names of their schools and hometowns, were hidden from the judges of an art competition.
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You have $145,000 to invest. You choose to put $195,000 into the market by borrowing $50,000.a. If the risk-free interest rate is 3% and the market expected return is 10 % what is the expected return of your investment?The expected return of your investment is _%?b. If the market volatility is 19 %, what is the volatility of your investment? calculate.
The expected return of the investment is 8.57% and the volatility of the investment is 38%.
To calculate the expected return of the investment, we need to calculate the weighted average return of the borrowed and invested amounts. The weight of the invested amount is (195,000/245,000) = 0.7959 and the weight of the borrowed amount is (50,000/245,000) = 0.2041. The expected return of the investment is then:
Expected return = (Weight of invested amount * Expected return of invested amount) + (Weight of borrowed amount * Risk-free rate)
Expected return = (0.7959 * 10%) + (0.2041 * 3%)
Expected return = 7.96% + 0.61%
Expected return = 8.57%
Therefore, the expected return of the investment is 8.57%.
The volatility of the investment can be calculated using the formula:
Volatility of investment = Square root of [(Weight of invested amount * Volatility of invested amount)^2 + (Weight of borrowed amount * Volatility of borrowed amount)^2 + 2 * Weight of invested amount * Weight of borrowed amount * Correlation coefficient * Volatility of invested amount * Volatility of borrowed amount]
Since the correlation coefficient is not given, we assume it to be 1 (which implies perfect positive correlation between the invested and borrowed amounts). The volatility of the borrowed amount is zero because it is risk-free. Therefore, the volatility of the investment is:
Volatility of investment = Square root of [(0.7959 * 19%)^2 + (0.2041 * 0%)^2 + 2 * 0.7959 * 0.2041 * 1 * 19% * 0%]
Volatility of investment = Square root of [0.1447]
Volatility of investment = 0.38 or 38%
Therefore, the volatility of the investment is 38%.
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