Derek’s Dinghies and Rafts (DDR) is the world’s largest manufacturer of rowboats and rafts. At the end of the current year, analysts expect DDR’s EBIT to be $2M and they expect the same earnings annually in perpetuity. DDR’s shareholders require a return of 12.5% and there are 5M common shares outstanding. DDR has debt with […]
Sloburn Barbeques Inc. uses the residual dividend model to set its dividends. Selected financial information for Sloburn is provided in the table below. Selected Financial Information Sloburn Barbeques Inc. Net income $75 million Equity capital structure weight 0.90 Total Dividends $7.5 million How much additional funds did Sloburn need to borrow in order to finance […]
________ are long-term debt instruments business and government use to raise large sums of money. A) T-bills B) Bonds C) Common stocks D) Preferred stocks E) Commercial papers ANSWER B
EnviroStyro Inc is all equity financed and generates perpetual annual EBIT of $750. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. EnviroStyro has 1,500 shares outstanding which trade for $3.611. The stockholders of EnviroStyro require a return of 9%. […]
John Kay Inc is considering the installation of a new production line to make automated flying shuttles for weaving machines. The capital cost of the equipment is $2.2 million. The machines on the new line are classified as 15-year property. Kay plans to operate the line for 2 years, at which time the project will […]
Which of the following is a role of the secondary market? A) Keep prices level B) Give information for securities on sale in the primary market C) Trade long term securities only D) Offer securities for sale for the first time E) Establishing security prices ANSWER E
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 […]
