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?
2. The Wall Street Journal lists the current price of James River common stock at $27 A. Based on this information, the Value Line 1995 expected dividend and the annual rate of dividend change for the growth estimate, what is the company’s return on common stock using the constant growth model? What is the expected dividend yield and expected capital gains yield? Explain the difference in the required return estimates from the Value Line to the WSJ price data.
If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV. 3. The Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%.
The Rule of 78s is computed on a sum-of-the-payment-periods digits basis. On a one-year loan with monthly payments, for example, the sum of the digits I through 12 is 78. DAVIDSON, SCINDLEt, STICKNEY & WELLS, supra, at 47. The following is an interest calculation under the Rule of 78s: a borrower takes out a 30-year loan, with annual interest payments calculated under tile Rule of 78s. To determine what part of each payment will constitute interest, the total amount of the interest will be multiplied by a fraction.
Part (b) Calculate the seasonal forecast of sales for February of Year 3. Part (c) Which forecast do you think is most accurate and why? 11. Question : (TCO 6) Davis Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project A Project B Initial Investment $800,000 $650,000 Annual Net Income $50,000 45,000 Annual Cash Inflow $220,000 $200,000 Salvage Value $0 $0 Estimated Useful Life 5 years 4 years The company requires a 10% rate of return on all new investments.
In its first quarter interim income statement, what amount of income tax expense should Tech report? a. $0 b. $30,000 c. $50,000 d. $60,000 2. Bailey Company, a calendar-year corporation, has the following income before income tax provision and estimated effective annual income tax rates for the first three quarters of 2009: Quarter 1st 2nd 3rd income before tax $60,000 $70,000 $40,000 estimated effective annual tax rate at end of quarter 20% 40% 45% Bailey’s income tax provision in its interim statement for the third quarter should be a. b. c. d. $18,000 24,500 25,500 76,500 3.
How much should the annual loan payments be? (Assume annual compounding. )-7384 A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At thetime of retirement you will have $73,425 to your credit in the plan. The plan anticipates earning9% interest.