Problems: Easy Problems 1-6 • 5-1 Bond Valuation with Annual payments Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? 80*7.1607+1000*.3555 = $928 • 5-2 Yield to Maturity for Annual payments Wilson Wonders’s bonds have 12 years remaining to maturity.
We measured ROE as: Net incomeTotal equity Assuming the return on equity would be 12 percent per year, at the end of year 2010, the book value of the company would be $5,990.90 million. In order to be able to compare the market value of the company
B. Identify the first quartile and third quartile of the ages of the uninsured senior citizens. C. Identify the median age and interquartile range of the ages of the uninsured senior citizens. 4 Problem 4 You are given the following sample, which represents the average weekly stock price of AZY Corporation over the last 10 weeks: Week 1 2 3 4 5 6 7 8 9 10 Stock Price ($) 4 5 4 3 4 6 8 7 6 7 (Stock Price)2 ($2) 16 25 16 9 16 36 64 49 36 49 Answer A. Assuming that variable X i denotes the average weekly stock price of AZY, what is the value of 10 Xi ?
If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital? Answer: Dividend Yield = Dividend / Share price = 0.88/22 = 4% Capital Gain Rate = (End of year stock price – Share price today) / Share price today = (23.54 – 22) / 22 = 7% Total expected return (Equity cost of capital) = 4% + 7% = 11% 9-5 No Growth Company NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year? Answer: Assume: dividends are paid at the end of the year Stock pays a total of $2.00 in dividends per year. Valuing this dividend as a perpetuity: P = $2.00 / 0.15 = $13.33 9-6 Value of Operations of Constant Growth Summit Systems will pay a dividend of $1.50 this year.
In order to give the advices on how the purchase of PacifiCorp affects the value of shares in Berkshire Hathaway, I will analyze some critical issues related to this case. Intrinsic Value The return on equity and the cost of equity must be determined to calculate the appropriate intrinsic value of PacifiCorp. Table 1 shows the appropriate intrinsic value of PacifiCorp. I assume the initial investment of $9.4 billion is discounted for the 10 year time horizon. During 10 years, the investors will reinvest all the cash flows into the company, so maintaining the growth of 7.45% each year.
During 2007 and 2008, Browser reported net income of $90,000 and $50,000 and paid dividends of $40,000 and $60,000, respectively. Fire wire reported a balance in its investment account of $230,000 on December 31, 2008. It uses the equity method in accounting for this investment. g. What is the annual amount of amortization of differential over the ten year period? h. In 2007, will Fire Wire report and increase or a decrease in the investment account balance?
b. What are the earnings after interest? c. If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b. d. Why are the percentage changes different? A.
How much will she have in December of 2007? (Assume that a deposit is made in 2007. Make sure to count the years carefully.) 8. Mr. Flint retired as president of the Color Tile Company but is currently on a consulting contract for $45,000 per year for the next 10 years.
4-5 Multiyear Future Value How much would be in your savings account in eight years after depositing $150 today if the bank pays 8 percent per year? (LG4-3) FV8 = 150 × (1 + 0.07)8 150 × 1.71818618 Answer: 257.73 4-7 Compounding with Different Interest Rates A deposit of $350 earns the following interest rates: a. 8 percent in the first year. b. 6 percent in the second year.
First, read the policy which is found in your Student’s Catalog. This policy states the importance of honesty in turning in your own work or citing correctly others work that you use. If you unclear about the policy you can contact your professor and they will be more than happy to help you. Understanding Consequences of Plagiarism: The consequences of plagiarism are very clear; it is not tolerated at all! There is a zero tolerance policy with plagiarism.