Sweetums Inc, a confectioner best known for its mint ogre balls, uses the residual dividend model to set its dividends. Selected financial information for Sweetums Inc is provided in the table below. Given the investment plan summarized in the table, how much new debt will it have to take on in order to maintain its […]
The Boeing Corp is considering building a new aircraft, the 787—larger than the 747 and larger than the Airbus A380. The company’s Renton WA Facility, where 747s are currently manufactured, would have to be expanded. Expansion costs are forecast to be $2.5B, incurred at t = 0. Also at time t = 0, before production […]
Tardy Clocks Inc (TC) has long term bonds with a face value of $6M, the coupon rate on the bonds is 6% and the yield on the bonds is also 6%. The unlevered cost of equity is 10% and the value of TC’s equity is $9.1M. The corporate tax rate is 35%. What is the […]
________ are further divided into two groups: Auctions, and Dealer markets. A) Secondary markets B) Primary markets C) Money markets D) Capital markets E) Investment markets ANSWER A
Boob-Tube Electronics Inc has long term bonds with a face value of $2M, the coupon rate on the bonds is 5% and the yield on the bonds is also 5%. The unlevered cost of equity is 12.5%, and the value of Boob-Tube’s equity is $3.6M. The corporate tax rate is 40%. What is the required […]
The Pawtucket Brewery uses the residual dividend model to set its dividends. Selected financial information for Pawtucket is provided in the table below. What is Pawtucket’s dividend per share? Selected Financial Information Pawtucket Brewery Net income $75 million Investments $110.25 million Equity capital structure weight 0.75 Shares Outstanding 42.5 million A) -$0.18 B) $0 C) […]
Topsy Breweries Inc, a UK brewer headquartered in Turvey, is all equity financed and generates perpetual annual EBIT of $800. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Topsy has 2,000 shares outstanding which trade for $4.00. The stockholders […]
Save-a-lot is a grocery store chain. Save-a-lot is forecasting its financial statements for Year 3. Selected financial information for Years 2 and 3 is provided in the table. In Year 3 Save-a-lot is planning to invest $600 million in CAPEX and forecasted depreciation is $903 million. What is Net PP&E (Property, Plant and Equipment) at […]
On Thursday, February 7, Baretta Pistols Inc declared a $0.75 per share dividend to be paid on Monday, April 15; the date of record will be Thursday, March 18. Baretta’s stock closed $17.25 on the last cum-dividend date. What will the opening price be on the ex-dividend date? (Assume perfect markets.) A) $15.75 B) $16.50 […]
Omnicorp is all equity financed and generates perpetual annual EBIT of $500. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Omnicorp has 1,000 shares outstanding which trade for $3.125. The stockholders of Omnicorp require a return of 8%. Omnicorp […]
