Finance Assignment
1. [20]
Here are returns:
Stock-A Market
Yr-1 14% 12%
Yr-2 19 10
Yr-3 -16 -12
Yr-4 3 1
Yr-5 20 15
a. Compute the beta for A.
b. Compute the required rate of return for A.
c. Suppose stock A”s return is 23%, is the stock fairly valued?
2. [14]
Six-Sixty-One Inc. has an optimal capital structure as follows:
Debt $ 45 million
Common Equity $ 100 million
You can sell 30 year, $ 1000 face value, 6% coupon bonds at 90% of par value.
The next dividend will be $ 1.50; and shares trade at $ 50. The firm’s growth rate is 10%. The tax rate is 30%.
a. Compute the WACC.
b. Compute the WACC if you think a capital structure of 40% debt and the rest equity is more optimal.
c. In 140 characters or less [TYPED]: why do you compute the cost of capital?
3. [18]
Firms A {unlevered} & B sell Hot Dogs made from rattlesnake. Firm B’s capital structure is different – it has $ 10 million; 5% coupon bonds.
EBIT for the firms is $ 2 million. Cost of equity for A is 10%.
a. In a M&M world – estimate the value for A & B.
b. Compute what the shareholders require as a return for A & B.
4. [8]
Use numbers and show me how a stock split affects the balance sheet of a firm.
5. [10]
Your firm has 25 million shares outstanding and they trade at $ 30. Net Income this year will be $ 3 million. You have $ 15 million to use and you plan to buy-back shares.
a. What is the EPS before and after the repurchase?
b. How many shares trade in the market after the buy back?
6. [18]
MBA Inc.
Market Value of Assets $ 10 million
Face value of pure discount bond $ 4 million
Debt Maturity 3 years
Asset return σ 60%
Rf 5%
Compute market value of debt and equity. Use Table 17.3. DO NOT INTERPOLATE!!!
Show ALL work.
7. [10]
DRAW a payoff diagram: You are an executive and the Board allots you an option to buy 1000 shares at $ 15. Shares trade at $ 10 now.
8. [8]
How does a Dutch auction work? Not more than 4 short sentences.
Why does Underpricing exist?
****1. [20]
Here are returns:
Stock-A Market
Yr-1 14% 12%
Yr-2 19 10
Yr-3 -16 -12
Yr-4 3 1
Yr-5 20 15
a. Compute the beta for A.
b. Compute the required rate of return for A.
c. Suppose stock A”s return is 23%, is the stock fairly valued?
2. [14]
Six-Sixty-One Inc. has an optimal capital structure as follows:
Debt $ 45 million
Common Equity $ 100 million
You can sell 30 year, $ 1000 face value, 6% coupon bonds at 90% of par value.
The next dividend will be $ 1.50; and shares trade at $ 50. The firm’s growth rate is 10%. The tax rate is 30%.
a. Compute the WACC.
b. Compute the WACC if you think a capital structure of 40% debt and the rest equity is more optimal.
c. In 140 characters or less [TYPED]: why do you compute the cost of capital?
3. [18]
Firms A {unlevered} & B sell Hot Dogs made from rattlesnake. Firm B’s capital structure is different – it has $ 10 million; 5% coupon bonds.
EBIT for the firms is $ 2 million. Cost of equity for A is 10%.
a. In a M&M world – estimate the value for A & B.
b. Compute what the shareholders require as a return for A & B.
4. [8]
Use numbers and show me how a stock split affects the balance sheet of a firm.
5. [10]
Your firm has 25 million shares outstanding and they trade at $ 30. Net Income this year will be $ 3 million. You have $ 15 million to use and you plan to buy-back shares.
a. What is the EPS before and after the repurchase?
b. How many shares trade in the market after the buy back?
6. [18]
MBA Inc.
Market Value of Assets $ 10 million
Face value of pure discount bond $ 4 million
Debt Maturity 3 years
Asset return σ 60%
Rf 5%
Compute market value of debt and equity. Use Table 17.3. DO NOT INTERPOLATE!!!
Show ALL work.
7. [10]
DRAW a payoff diagram: You are an executive and the Board allots you an option to buy 1000 shares at $ 15. Shares trade at $ 10 now.
8. [8]
How does a Dutch auction work? Not more than 4 short sentences
Why does Underpricing exist?
12 years ago
Purchase the answer to view it
- finance_assignment_solution.xlsx