Answers to Warm-Up Exercises E8-1. Total annual return Answer: ($0 $12‚000 $10‚000) $10‚000 $2‚000 $10‚000 20% Logistics‚ Inc. doubled the annual rate of return predicted by the analyst. The negative net income is irrelevant to the problem. E8-2. Expected return Answer: Analyst 1 2 3 4 Total Probability 0.35 0.05 0.20 0.40 1.00 Return 5% 5% 10% 3% Expected return Weighted Value 1.75% 0.25% 2.0% 1.2% 4.70% E8-3. Comparing the risk of two investments Answer: CV1 0.10 0.15 0.6667 CV2 0.05
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project was rejected because it only provides a 13% return and does not meet the minimum return of 15% mandated by Henry Hubbard. Although the project does create some increase in earning per share‚ it does not provide the required return to keep up with the interest rates the corporation had been paying on the recent borrowings. 2. Randall and Hubbard seem to have disregarded that each of the divisions are very different. As a result‚ the return on assets will be different. This will create tension
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establishing empirical estimates of such a benchmark market risk premium. As a result‚ the typical advice to practitioners is to estimate the market risk premium based on historical realizations of share and bond returns In this paper‚ we present estimates of shareholder required rates of return and risk premia which are derived using forward-looking analysts’ growth forecasts. We update‚ through 1991‚ earlier work which‚ due to data availability‚ was restricted to the period 1982-1984 (Harris [12]).
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of assets‚ and it uses only common equity capital (zero debt). Its sales for the last year were $620‚000‚ and its net income after taxes was $24‚655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE‚ holding everything else constant? (Points : 10) 7.57% 7.95% 8.35% 8.76% 9.20% 4. (TCO B) You want to buy a new
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purchase 1‚000 shares of Spears Grinders‚ Inc. stock for $45 per share. A year later‚ the stock pays a dividend of $1.25 per share‚ and it sells for $49. a. Calculate your total dollar return. 1‚000 ($1.25 + $4) = $5‚250 b. Calculate your total percentage return. ($49 + $1.25 - $45)/$45 = 0.1167 or 11.67%. c. Do the answers to parts (a) and (b) depend on whether you sell the stock after one year or continue
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where improvements are necessary If our customers are satisfied Present in the balance storecard: Financial Nonfinancial Firms uses the following measures in its balanced scorecard: 1. Financial perspective—stock price‚ net income‚ return on sales‚ return on investment‚ and economic value added 2. Customer perspective—market share in different geographic locations‚ customer satisfaction‚ and average number of repeat visits 3. Internal-business-process perspective—customer-service time for making
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Chapter 8 Problem 6 The following are the historic returns for the Chelle Computer Company: Year Chelle Computer General Index Year chelle computer general index 1 37 15 2 9 13 3 -11 14 4 8 -9 5 11 12 6 4 9 Based on this information‚ compute the following: a. The correlation coefficient between Chelle Computer and the General Index. Answer : r= .1305 b. The standard deviation for the company and the index
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to examine and test the January Effect as a trading strategy. The January Effect is well documented in the literature since Rozeff and Kinney (RK) 1976. Their study showed share returns appear to be abnormally high in January in the United States. In Australia‚ Brown et al (BKKM) 1983 demonstrated that ASX share returns peak in January and July. This trend appears to persist over time and markets across the world so it could be an exploitable trading strategy‚ taking advantage of market inefficiency
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earnings‚ operating profit etc. Equity investors should earn on their capital a return far over risk-free interest rate in order to induce and maintain capital in the company Therefore earnings should always be judged against the capital used to produce these earnings Earnings can be easily increased simultaneously worsening the position of shareholders e.g. if more capital is poured into! company although the return on capital is 5% or less (even lower than long-term government bond) Thus it is
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from investments of Rs.4‚000 per annum. Rs. Year ended 30th April‚ 2006 64‚000 Year ended 30th April‚ 2007 72‚000 Year ended 30th April‚ 2008 86‚000 Year ended 30th April‚ 2009 90‚000 Standard rate of return on capital employed in such type of business is 8%. Compute the amount of goodwill of the above business at three years purchase of the average super profits for four
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