Question: In January 2016, Anheuser-Busch issued an

> A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.20. a. If the market return increased by 15%, what impact would this change be expected to have on the asset’s return? b. If the market

> For each of the investments shown in the following table, calculate the rate of return earned over the period. Cash flow during period -$ 800 Beginning-of- period value $ 1,100 120,000 End-of- Investment period value A $ $ 100 B 15,000 118,000 C 7,0

> You are analyzing the performance of two stocks. The first, shown in Panel A, is Cyclical Industries Incorporated. Cyclical Industries makes machine tools and other heavy equipment, the demand for which rises and falls closely with the overall state of t

> A firm wishes to estimate graphically the betas for two assets, A and B. It has gathered the return data shown in the following table for the market portfolio and for both assets over the past 10 years, 2009–2018. a. On a set of &acir

> David Talbot randomly selected securities from all those listed on the New York Stock Exchange for his portfolio. He began with a single security and added securities one by one until a total of 20 securities were held in the portfolio. After each securi

> Cooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are given in the following table. Using these data, graph, on the same set of axes, the NPV profiles for each project, using d

> Joe Martinez, a U.S. citizen living in Brownsville, Texas, invested in the common stock of Telmex, a Mexican corporation. He purchased 1,000 shares at 20.50 pesos per share. Twelve months later, he sold them at 24.75 pesos per share. He received no divid

> Matt Peters wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfectly positive, uncorrelated, and perfectly negative. The expected returns and standard de

> You have been given the historical return data shown in the first table on three assets—F, G, and H—over the period 2016–2019. Using these assets, you have isolated the three investment alternatives

> Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of the dollar value of the portfolio, and stock M will account for the other 60%. The historical returns over the last 6 years, 2013&aci

> Answer the following questions, assuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, r, is 18.9%; and that the coefficient of variation, CV, is 0.75. a. Find the standard deviation

> Three assets—F, G, and H—are currently under consideration by Perth Industries. The probability distributions of expected returns for these assets are shown in the following table. a. Calculate the average return, r,

> Swift Manufacturing must choose between two asset purchases. The annual rate of return and the related probabilities given in the following table summarize the firm’s analysis to this point. a. For each project, compute: (1) The range

> Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglas’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A

> McCracken Roofing Inc. common stock paid a dividend of $1.20 per share last year. The company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future. a. What required rate of return for this stock would result in a pri

> Use the constant-growth dividend model (Gordon growth model) to find the value of each firm shown in the following table. Firm Dividend expected next year Dividend growth rate Required return A. $1.20 8% 13% 4.00 5 15 C 0.65 10 14 D 6.00 8. 9. E 2.2

> Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $15,000 and generates c

> Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has an $80 par value and pays an annual dividend of $6.40 per share. Similar-risk preferred stocks are currently earning a 9.3% annual rate of return. a. Wh

> Kelsey Drums Inc. is a well-established sup- plier of fine percussion instruments to orchestras all over the United States. The company’s class A common stock has paid a dividend of $2.80 per share per year for the last 12 years. Management expects to co

>  TXS Manufacturing has an outstanding preferred stock issue with a par value of $65 per share. The preferred shares pay dividends annually at a rate of 10%. a. What is the annual dividend on TXS preferred stock? b. If investors require a return of 8% on

> Valerian Corp. convertible preferred stock has a fixed conversion ratio of five common shares per one share of preferred stock. The preferred stock pays a dividend of $10.00 per share per year. The common stock currently sells for $20.00 per share and pa

> Gina Vitale has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 now, or the buyer will make a series of 5 payments starting now and continuing at annual intervals as shown in the tabl

> For each of the mixed streams of cash flows shown in the following table, determine the future value at the end of the final year if deposits are made into an account paying annual interest of 12%, assuming that no withdrawals are made during the period

> In each case in the following table, how many dollars of preferred dividends per share must be paid to preferred stockholders in the current period before common stock dividends are paid? Dividend per share per period Periods of Case Туре Par value

> On completion of her introductory finance course, Marla Lee was so pleased with the amount of useful and interesting knowledge she gained that she convinced her parents, who were wealthy alumni of the university she was attending, to create an endowment.

> You are evaluating an investment that will pay $75 in 1 year, and it will continue to make payments at annual intervals thereafter, but the payments will grow by 4% forever. a. What is the present value of the first $75 payment if the discount rate is 10

> Bond-rating agencies have invested significant sums of money in an effort to determine which quantitative and non-quantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate pers

> Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $52,500 and generate cash inflows of $24,500 per year for the next 3 years. Project Thompson inv

> a. Calculate the required rate of return for an asset that has a beta of 1.8, given a risk-free rate of 5% and a market return of 10%. b. If investors have become more risk averse due to recent geopolitical events and the market return rises to 13%, what

> Calculate the value of a $5,000-par-value bond paying quarterly interest at an annual coupon rate of 10% and having 10 years until maturity if the required return on similar-risk bonds is currently a 12% annual rate paid quarterly.

> Melissa is trying to value the stock of Generic Utility Inc., which is clearly not growing at all. Generic declared and paid a $5 dividend last year. The required return for utility stocks is 11%, but Melissa is unsure about the financial reporting integ

> Hamlin Steel Company wishes to determine the value of Craft Foundry, a firm that it is considering acquiring for cash. Hamlin wishes to determine the applicable discount rate to use as an input to the constant growth valuation model. Craftâ€&#

> Giant Enterprises’ stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experi

> Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common Expected dividend per share next year Constant annual dividend growth rate Risk-free rate of return $5

> REH Corporation’s most recent dividend was $3 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm’s activities. Determine the imp

> For each of the firms shown in the following table, use the data given to estimate its common stock value employing price/earnings (P/E) multiples. Firm Expected EPS Price/earnings multiple A $3.00 6.2 В 4.50 10.0 1.80 12.6 2.40 8.9 E 5.10 15.0

> Acura Labs Inc. has an outstanding issue of preferred stock with a $40 par value and an 8% annual dividend. a. What is the annual dollar dividend? If it is paid quarterly, how much will be paid each quarter? b. If the preferred stock is noncumulative and

> The balance sheet for Gallinas Industries is as follows. Additional information with respect to the firm is available: (1) Preferred stock can be liquidated at book value. (2) Accounts receivable and inventories can be liquidated at 90% of book value.

> Assume that you have an opportunity to buy the stock of CoolTech Inc., an IPO being offered for $12.50 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of

> Herky Foods is considering acquisition of a new wrapping machine. By purchasing the machine, Herky will save money on packaging in each of the next 5 years, producing the series of cash inflows shown below. The initial investment (CF0) is estimated at $1

> Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firmâ&

> You are evaluating the potential purchase of a small business with no debt or preferred stock that is currently generating $42,500 of free cash flow (FCF0 = $42,500). On the basis of a review of similar-risk investment opportunities, you must earn an 18

> Lawrence Industries’ most recent annual dividend was $1.80 per share (D0 = $1.80), and the firm’s required return is 11%. Find the market value of Lawrence’s shares when: a. Dividends are expected to grow at 8% annually for 3 years, followed by a 5% cons

> Home Place Hotels Inc. is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when completed, it should allow the company to enjoy much improved growth in earnings and di

> Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $4.25 per share and paid cash dividends of $2.55 per share (D0 = 2.55). Grips’ earnings and dividends are expected to grow at 25%

> Over the past 6 years, Elk County Telephone has paid the dividends shown in the following table. The firm’s dividend per share in 2020 is expected to be $3.02. a. If you can earn 13% on similar-risk investments, what is the most you w

> The common stock of Barr Labs Inc. trades for $114 per share. Investors expect the company to pay a $1.35 dividend next year, and they expect that dividend to grow at a constant rate forever. If investors require a 15.8% return on this stock, what divide

> Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2015 through 2019, Seagate paid the following per-share dividends: Assume that the historical annual growth rate of Seagate dividends is an accurate e

> Aspin Corporation’s charter authorizes issuance of 2,000,000 shares of common stock. Currently, 1,400,000 shares are outstanding, and 100,000 shares are being held as treasury stock. The firm wishes to raise $48,000,000 for a plant expansion. Discussions

> Elysian Fields Inc. uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of $35,000. Using the expect

> A 1-year Treasury bill currently offers a 5% rate of return. A 2-year Treasury note offers a 5.5% rate of return. Under the expectations theory, what rate of return do investors expect a 1-year Treasury bill to pay next year?

> The following yield data for a number of highest quality corporate bonds existed at each of the three points in time noted. a. On the same set of axes, draw the yield curve at each of the three given times. b. Label each curve in part a with its genera

> Tyra loves to shop at her favorite store, Dollar Barrel, where she can find hundreds of items priced at exactly $1. Tyra has $200 to spend and is thinking of going on a shopping spree at Dollar Barrel, but she is also thinking of investing her money. a.

> Economic forecasters predict that the rate of inflation will hold steady at 2% per year indefinitely. The table below shows the nominal interest rate paid on Treasury securities having different maturities. a. Approximately what real interest rate do T

> A firm wishing to evaluate interest rate behavior has gathered yield data on five U.S. Treasury securities, each having a different maturity and all measured at the same point in time. The summarized data follow. a. Draw the yield curve associated with

> Zane Perelli currently has $100 that he can spend today on socks costing $2.50 each. Alternatively, he could invest the $100 in a risk-free U.S. Treasury security that is expected to earn a 9% nominal rate of interest. The consensus forecast of leading e

> Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Required stated annual return Years to Bond Par value Coupon rate maturity A $1,000 10% 12 8% B. 1,000 12 20 12 500 12 5 14 D 1,000 14 10

> Find the value of a bond maturing in 6 years, with a $1,000 par value and a coupon rate of 10% (5% paid semiannually) if the required return on similar-risk bonds is 14% per year (7% paid semiannually).

> Mark Goldsmith’s broker has shown him two bonds issued by different companies. Each has a maturity of 5 years, a par value of $1,000, and a yield to maturity of 7.5%. The first bond is issued by Crabbe Waste Disposal Corporation and has a coupon rate of

> Each of the bonds shown in the following table pays interest annually. a. Calculate the yield to maturity (YTM) for each bond. b. What relationship exists between the coupon rate and yield to maturity and the par value and market value of a bond? Expla

> Oxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm’s capital structure targets the following proportions: debt, 55%; preferred stock, 10%; and common stock, 35%. If the cost of debt is 6.7%, preferred stock costs 9.2%

> The Salem Company bond currently sells for $867.59, has a 6% coupon rate and a $1,000 par value, pays interest annually, and has 15 years to maturity a. Calculate the yield to maturity (YTM) on this bond. b. Explain the relationship that exists between t

> The relationship between a bond’s yield to maturity and coupon rate can be used to predict its pricing level. For each of the bonds listed, state whether the price of the bond will be at a premium to par, at par, or at a discount to par

> To estimate the equilibrium rate of interest, the economics division of Mountain Banks—a major bank holding company—has gathered the data summarized in the following table. Because the likelihood is high that new tax l

> Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 11% coupon rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the va

> Pecos Manufacturing has just issued a 15-year, 12% coupon rate, $1,000-par bond that pays interest annually. The required return is currently 14%, and the company is certain it will remain at 14% until the bond matures in 15 years. a. Assuming that the r

> Midland Utilities has a bond issue outstanding that will mature to its $1,000 par value in 12 years. The bond has a coupon rate of 11% and pays interest annually. a. Find the value of the bond if the required return is (1) 11%, (2) 15%, and (3) 8%. b. P

> Calculate the value of each of the bonds shown in the following table, all of which pay interest annually. Par value Coupon rate Years to maturity Required return Bond A $1,000 11% 20 12% B 1,000 8 16 8 100 7 D 500 6. 13 8. E 1,000 7 10

> Complex Systems has an outstanding issue of $1,000-parvalue bonds with a 12% coupon rate. The issue pays interest annually and has 16 years remaining to its maturity date. a. If bonds of similar risk are currently earning a 10% rate of return, how much s

> Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,000 per year for each of the next 4 years and $15,000 in 5 years. Her research indicates that she must earn 4% on low-risk assets, 7% on average-risk assets, and

> Using the information provided in the following table, find the value of each asset today. Cash flow Asset Year Amount Appropriate required return A $ 3,000 1 8% 2 3,000 3 3,000 1 through oo $ 500 5% C 1 6% 2 4 5 45,000 $ 1,500 8,500 D 1 through 5 4

> Weekend Warriors Inc. has 35% debt and 65% equity in its capital structure. The firm’s estimated after-tax cost of debt is 8% and its estimated cost of equity is 13%. Determine the firm’s weighted average cost of capital (WACC).

> Imagine that you are trying to evaluate the economics of purchasing a condominium to live in during college rather than renting an apartment. If you buy the condo, during each of the next 4 years you will have to pay property taxes and maintenance expend

> Assume that the Financial Management Corporation’s $1,000-par-value bond had a 5.700% coupon, matures on May 15, 2027, has a current price quote of 97.708, and has a yield to maturity (YTM) of 6.034%. Given this information, answer the following question

> Charter Corp. has issued 2,500 debentures with a total principal value of $2,500,000. The bonds have a coupon rate of 7%. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter’s total inte

> Carl Foster, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in today’s marketplace. He has looked up the rate paid on 3-month U.S. Treasury bills and found it to be 1.5%. He has decid

> A person borrows $200 that he must repay in a lump sum no more than 8 years from now. The interest rate is 8.5% annually compounded. The borrower can repay the loan at the end of any earlier year with no prepayment penalty. a. What amount will be due if

> Misty needs to have $15,000 in 5 years to fulfill her goal of purchasing a small sailboat. She is willing to invest a lump sum today and leave the money untouched for 5 years until it grows to $15,000, but she wonders what sort of investment return she w

> You can deposit $10,000 into an account paying 9% annual interest either today or exactly 10 years from today. How much better off will you be 40 years from now if you decide to make the initial deposit today rather than 10 years from today?

> As part of your financial planning, you wish to purchase a new car 5 years from today. The car you wish to purchase costs $14,000 today, and your research indicates that its price will increase by 2% to 4% per year over the next 5 years. a. Estimate the

> You have $1,500 to invest today at 7% interest compounded annually. a. Find how much you will have accumulated in the account after (1) 3 years, (2) 6 years, and (3) 9 years. b. Use your findings in part a to calculate the amount of interest earned in (1

> For each of the cases shown in the following table, calculate the future value of the single cash flow deposited today and held until the end of the deposit period if the interest is compounded annually at the rate specified. Single cash flow Deposi

> Duke Energy has been paying dividends steadily for 20 years. During that time, dividends have grown at a compound annual rate of 3%. If Duke Energy’s current stock price is $78 and the firm plans to pay a dividend of $6.50 next year, what is the required

> You have $100 to invest. If you put the money into an account earning 5% interest compounded annually, how much money will you have in 10 years? How much money will you have in 10 years if the account pays 5% simple interest?

> Suppose that today’s date is January 1, 2019. You have the opportunity to make an investment that will pay you $100 on January 1 of every year, starting in 2020 and continuing forever. Assume the relevant discount rate is 7%. a. What would you pay now fo

> Consider the data in the following table. Determine the present value of each perpetuity. Perpetuity Annual payment Discount rate A $ 20,000 8% В 100,000 10 C 3,000 6. D 60,000 5

> Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (i.e., $1,000,000 over 25 years) or as a single amount of $500,000 paid immediately. a. If you expect to earn 5% ann

> Emily Jacob is 45 years old and has saved nothing for retirement. Fortunately, she just inherited $75,000. Emily plans to put a large portion of that money into an investment account earning an 11% return. She will let the money accumulate for 20 years,

> An insurance agent is trying to sell you an annuity that will provide you with $12,000 at the end of each of the next 25 years. If you don’t purchase this annuity, you can invest your money and earn a return of 9%. What is the most you would pay for this

> Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a 10% return over the

> Marian Kirk wishes to select the better of two 10-year annuities. Annuity 1 is an ordinary annuity of $2,500 per year for 10 years. Annuity 2 is an annuity due of $2,300 per year for 10 years. a. Find the future value of both annuities 10 years from now,

> Consider the following cases. a. Calculate the present value of the annuity, assuming that it is (1) An ordinary annuity. (2) An annuity due. b. Compare your findings in parts a(1) and a(2). All else being identical, which type of annuityâ€&

> Future value calculation  Without referring to the preprogrammed function on your financial calculator, use the basic formula for future value along with the given interest rate, r, and the number of periods, n, to calculate the f

> Your firm, People’s Consulting Group, has been asked to consult on a potential preferred stock offering by Brave New World. This 9% preferred stock issue would be sold at its par value of $55 per share. Flotation costs would total $3 per share. Calculate

> For each case in the accompanying table, answer the questions that follow. a. Calculate the future value of the annuity, assuming that it is (1) An ordinary annuity. (2) An annuity due. b. Compare your findings in parts a(1) and a(2). All else being id

> You put $10,000 in an account earning 5%. After 3 years, you make another deposit into the same account. Four years later (that is, 7 years after your original $10,000 deposit), the account balance is $20,000. What was the amount of the deposit at the en

> Tom Alexander has an opportunity to purchase any of the investments shown in the following table. The purchase price, the amount of the single cash inflow, and its year of receipt are given for each investment. Which purchase recommendations would you ma

> In exchange for a $23,000 payment today, a well-known company will allow you to choose one of the alternatives shown in the following table. Your opportunity cost is 9%. a. Find the value today of each alternative. b. Are all the alternatives acceptabl

> You just won a lottery that promises to pay you $1,000,000 exactly 10 years from today. A company approaches you today, offering cash in exchange for your winning lottery ticket. a. What is the least you will sell your claim for if you can earn the follo

> An Iowa state savings bond can be converted to $100 at maturity 6 years from purchase. If the state bonds are to be competitive with U.S. savings bonds, which pay 3% annual interest (compounded annually), at what price must the state sell its bonds? Assu