QUESTION 67 Developments International trade has expanded substantially in the last few decades; however this has led to greater uncertainty for multinational companies. Required Discuss ways in which increased globalisation may adversely affect multinational organisations. Answer Adverse effects of increased globalisation on multinational companies: Government regulation (a) Increased regulation due to greater number of industries […]
QUESTION A firm is currently employing an aggressive working capital policy with regard to the level of current assets it maintains (relatively low levels of current assets for each possible level of output). The firm has decided to switch to a more conservative working capital policy. What effect will this decision probably have on the […]
QUESTION IDX Tech is looking to expand its investment in advanced security systems. The project will be financed with equity. You are trying to assess the value of the investment, and must estimate its cost of capital. You find the following data for a publicly traded firm in the same line of business: Debt Outstanding […]
QUESTION Kidwell Industries has equity capital of $12 million, total debt of $8 million, and sales last year of $30 million.a. It has a target assets-to-sales ratio of 0.6667, a target net profit margin of 0.04, a target debt-to-equity ratio of 0.6667, and a target earnings retention rate of 0.75. In steady state, what is […]
QUESTION Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.69. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected return of a portfolio that consists of 60% Autodesk stock and 40% Costco stock, according to the […]
QUESTION The long-term debt section of the balance sheet of the Queen Annes Lace Corporation appears as follows:91/4%mortgage bonds$2,500,000123/8%second mortgage bonds1,500,000101/4%debentures1,000,000141/2%subordinated debentures1,000,000$6,000,000If the average earnings before interest and taxes of the company is $1.5 million and all debt is long term, what is the overall interest coverage? Interest Expense 91/4%mortgage bonds $2,500,000 231250 (9.25 % […]
QUESTION You currently have $100,000 invested in a portfolio that has an expected return of 12% and a volatility of 8%. Suppose the risk-free rate is 5%, and there is another portfolio that has an expected return of 20% and a volatility of 12%. a. What portfolio has a higher expected return than your portfolio […]
QUESTION In mid-2012, Coca-Cola Company (KO) had a share price of $39. Its dividend was $1.00 per year, and you expect Coca-Cola to raise this dividend by approximately 7% per year in perpetuity. a. If Coca-Colas equity cost of capital is 8%, what share price would you expect based on your estimate of the dividend […]
QUESTION Stock Prices and Returns Suppose you expect Walgreen Company (a drugstore chain) to pay dividends of $0.44 per share and trade for $33 per share at the end of the year. If investments with equivalent risk to Walgreens stock have an expected return of 8.5%, what is the most you would pay today for […]
QUESTION Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $350. It plans to lower the price to $300 next year. Its cost of goods sold for the Hyper 500 is $200 per unit, and this years sales are expected to be 20,000 units. a. Suppose that if Hyperion drops the […]
