Questions 1. According to ValueLine estimates in Figure 1, James River’s expected annual dividend growth rate from the 91–93 to 97–99 period is 5.50%, and the next dividend (1995) is expected to be $0.60. Assume that the required return for James River was 8.36% on January 1 1995 and that the 5.50% growth rate was expected to continue indefinitely. a. Based on the Constant Growth Rate or Gordon Model, what was James River’s price at the beginning of 1995?
Module 4 - BEATRICE PEABODY – Questions Alexandria Wiles 1. According to ValueLine estimates in Figure 1, James River’s expected annual dividend growth rate from the 91–93 to 97–99 period is 5.50%, and the next dividend (1995) is expected to be $0.60. Assume that the required return for James River was 8.36% on January 1 1995 and that the 5.50% growth rate was expected to continue indefinitely. a. Based on the Constant Growth Rate or Gordon Model, what was James River’s price at the beginning of 1995?
Explain the difference in the required return estimates from the Value Line to the WSJ price data. The company’s return on common stock using the constant growth model is 7.72% Expected dividend yield = .60/27= 2.22% Cap. Gains Yield=5.5% The expected returns decreased from 8.36%to 7.72% which indicates the company is not as risky because the higher the risk the higher the return. B. What is the relationship between dividend yield and capital gains yield over time under constant growth assumptions?
Questions 1. According to ValueLine estimates in Figure 1, James River’s expected an¬nu¬al dividend growth rate from the 91–93 to 97–99 period is 5.50%, and the next dividend (1995) is expected to be $0.60. Assume that the re¬quired return for James River was 8.36% on January 1 1995 and that the 5.50% growth rate was expected to continue indefinitely. a. Based on the Constant Growth Rate or Gordon Model, what was James River’s price at the beginning of 1995?
Inventory had a slight increase from 4% to 4.8% in 2004. The increase in accounts receivable shows an increase in credit sales. While the decrease in cash and cash equivalents and increase in marketable securities shows that Lucent is removing idle cash and investing to earn interest and cash inflows are declining. The increase in inventory shows their products are revolving as well as they should. Total current assets have declined from 49.4% to 48.5%.
The total assets of Coke have risen over the years but the percent of current assets has reduced. The reduction in productive assets is a positive indication that fewer assets are required to generate increased revenues. The assets that have increased are related to other long term assets. These long term assets are possibly from acquisitions for intangible assets. There is a noticeable reduction in the receivables line and increase in cash.
Judging the economic conditions of the time, I would suspect that the company lowered its prices in order to maintain customers since consumer spending was in a down slope. In regards to asset turnover, it grew slightly over the three year period. This indicates that the company is increasing its efficiency in its use of assets to increase revenues. The primary attribute that contributed to the change in ROA would have to be the change in total assets from year to year. When looking at the balance sheet we see that the assets had a major increase from 2005 6o 2006.
However, the company was not able to sustain the growth in sales between years 7 and 8, which resulted in a decrease in net sales of -15% or $897,000. The company’s loss in net sales in year 8 is a weakness due to overall sales being down. Cost of goods sold (COGS) between years 6 and 7 show an increase of 31.8% or $1,048M. The increase in COGS corresponds closely with the increase in net sales for the same time period, which illustrates the company’s ability to effectively control its inventory levels and material costs. For years 7 and 8, the cost of goods sold decreased by -14.5% or $630,400, which again corresponds to the change in net sales for the same period.
b. The future value of $800 saved each year for 10 years at 8 percent. c. The amount that a person would have to deposit today (present value) at a 6 percent interest rate in order to have $1,000 five years from now. d. The amount that a person would have to deposit today in order to be able to take out $500 a year for 10 years from an account earning 8 percent. Solution: a.
The Home Depot Company wants to expand their business in a global arrange. Actually, this situation is not able to happening every year; therefore, I considered it as a extraordinary item. 2. As we know from the fiscal 2007, the value of treasury stock was negative $16,383 million, but when it comes in the fiscal the value of treasury stock was negative $314 million, which means The Home Depot Company may sell their treasury stock for some money, the factor is that the sales of Home Depot Company decreased $13,488 million, therefore, they need money to run the company, so they sell some of the treasury stock for some money. This is the second extraordinary item.