dividend growth rate is forecasted to be 6% forever. Risk-free rate is 3%‚ and market risk premium is 4%. Assume that Constant Dividend Growth Model and CAPM give you the same estimate of the cost of capital for equity‚ what is the beta of its stock? By the Constant Dividend Growth Model: Cost of Equity = D/P+g = 0.2/20+6%=7% By CAPM‚ cost of equity = R(f)+ beta * market risk premium = 3% + beta* 4%‚ Set this to be equal to 7%‚ solve for beta: beta=1 3. Firm ABC has a cost of equity of 8%‚ a
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Year 1 Year 2 Year 3 Year 4 Year 5 EBIT $8‚200‚000 $14‚200‚000 $16‚600‚000 $9‚400‚000 $4‚800‚000 Less: Taxes ($2‚788‚000) ($4‚828‚000) ($5‚644‚000) ($3‚196‚000) ($1‚632‚000) Plus: Depreciation $1‚600‚000 $1‚600‚000 $1‚600‚000 $1‚600‚000 $1‚600‚000 Equals: Operating Cash Flow $7‚012‚000 $10‚972‚000 $12‚556‚000 $7‚804‚000 $4‚768‚000 f. What is the terminal cash flow? Terminal Cash Flow is $3‚208‚000 Initial Outlay Year 1 Year 2 Year 3 Year 4 Year 5 EBIT $8‚200‚000 $14
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ACC553 Week 4 You Decide Activity To : John and Jane Smith From : Kathy Polk‚ CPA Near Lakes City Date : August 2‚ 2012 Dear Mr. and Mrs. Smith‚ I would like to thank you for coming into the office and permitting us to review and deliberate the concerns you have with your tax questions. Please contact me‚ after you both have studied my suggestions‚ so we can address any other questions you may have at that time. John Smith’s questions: 1(a) How is the $300‚000 treated for purposes
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short on your spring break vacation‚ so you put €1‚000 on your credit card. You can only afford to make the minimum payment of €20 per month. The interest rate on the credit card is 1.5 percent per month. How long will you need to pay off the €1‚000? 4. Suppose you borrow €10‚000. You are going to repay the loan by making equal annual payments for five years. The interest rate on the loan is 14 percent per year. Prepare an amortization schedule for the loan. How much interest will you pay over the
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CGA-CANADA ADVANCED CORPORATE FINANCE [FN2] EXAMINATION June 2011 Marks Notes: 1. Questions 1 and 2 are multiple choice. For these questions‚ select the best answer for each of the unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example‚ if the best answer for item (a) is (1)‚ write (a)(1) in your examination booklet. If more than one answer is given for an item‚ that item will not be marked. Incorrect answers will be marked as zero
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Department of Finance‚ HKUST Spring 2013 Email: Xuewenliu@ust.hk Office hour: 13:30-14:30 Tuesday Assessment: Assignments (12%)‚ Midterm-exam (18%)‚ Projects and presentations (15%)‚ and Final exam (55%) Textbooks: 1. Corporate Finance‚ by J. Beck and P. DeMarzo‚ 2nd edition 2011‚ Pearson Education‚ Inc. Hereafter BD. 2. Financial Markets and Corporate Strategy‚ by M. Grinblatt and S. Titman‚ 2nd edition‚ 2002‚ Irwin McGraw Hill. Hereafter GT. I. Introduction to Corporate Finance 1. Corporations
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Problems: 8.1: Data for Newark General Hospital (In Millions of Dollar): | |Static Budget |Flexible Budget |Actual Result | |Revenues |4.7 |4.8 |4.5 | |Costs |4.1 |4.1 |4.2 | |Profits
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List and briefly describe the three basic questions addressed by a financial manager. What should be the goal of the financial manager of a corporation? Why? What advantages does the corporate form of organization have over sole proprietorships or partnerships? If the corporate form of business organization has so many advantages over the sole proprietorship‚ why is it so common for small businesses to initially be formed as sole proprietorships? The three areas are: 1. Capital budgeting: The
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that it does not diminish or create shareholder wealth. Hence‚ Nolan’s argument that the company’s return and assets and return on equity will increase is not correct. However‚ the P/E ratio might go upwards for a time until the market corrects it. 4. Another option discussed by Tom‚ Jessica and Nolan would be to begin a regular dividend payment to shareholders. How would you evaluate this proposal? A plan to issue a regular dividend to shareholders is a start in establishing a dividend
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Sunny Beach Hotel Evaluation Report Regarding Various Scenarios for Adding a Karaoke Pub in the Sunny Beach Hotel . Dear Sir‚ I have considered the scenarios you suggested to be evaluated from economic point of view regarding the opportunity of accepting the offer of Planet Karaoke Pub to install one of its facilities inside the free space from 2nd floor of Sunny Beach Hotel or to extend the activities of our company with a Karaoke pub located on the beach area administrated by our
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