QUESTION You are evaluating two stocks, A and B. Their historical 3-year performance has been a return of E[r(A)] = 11% and E[r(B)] = 13%, with standard deviations (A) = 16% and (B) = 23%. The market has returned E[r(M)] = 12% with a standard deviation of the market of (M) = 20%. You estimate […]
QUESTION The returns on the common stock of New Image Products are quite cyclical. In a boom economy, the stock is expected to return 32 percent in comparison to 14 percent in a normal economy and a negative 28 percent in a recessionary period. The probability of a recession is 10 percent while the probability […]
QUESTION C The Hernandez family is experiencing some financial pressures, even though the couple has a combined income of $66,000. Also, their eldest son, Joseph, will start college in only three years. Maria is contemplating going to work full time to add about $25,000 to the familys annual income. a. How will this change in […]
QUESTION (Analysi s o f Leas e vs . Purchase ) Dunn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building […]
QUESTION (Computation of Bond Liability) George Hincapie Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the in- creasing demand for the companys bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the […]
QUESTION John Fillmores lifelong dream is to own his own fishing boat to use in his retirement. John has recently come into an inheritance of $400,000. He estimates that the boat he wants will cost $300,000 when he retires in 5 years. How much of his inheritance must he invest at an annual rate of […]
QUESTION New Colony Corporation (a U.S. company) made a sale to a foreign customer on September 15, 2013, for 100,000 foreign currency units (FCU). It received payment on October 15, 2013. The following exchange rates for 1 FCU apply: September 15, 2013 $0.40 September 30, 2013 0.42 October 15, 2013 0.37 Prepare all journal entries […]
QUESTION For the next fiscal year, you forecast net income of $50,000 and ending assets of $500,000. Your firms payout ratio is 10%. Your beginning stockholders equity is $300,000 and your beginning total liabilities are $120,000. Your non-debt liabilities such as accounts payable are forecasted to increase by $10,000. What is your net new financing […]
QUESTION MacKenzie Corporation currently has 10 million shares of stock outstanding at a price of $40 per share. The company would like to raise money and has announced a rights issue. Every existing shareholder will be sent one right per share of stock that he or she owns. The company plans to require ten rights […]
QUESTION RiverRocks realizes that it will have to raise the financing for the acquisition of Raft Adventures (described in Problem 19) by issuing new debt and equity. The firm estimates that the direct issuing costs will come to $7 million. How should it account for these costs in evaluating the project? Should RiverRocks go ahead […]
