Solutions to Valuation Questions 1. Assume you expect a company’s net income to remain stable at $1‚100 for all future years‚ and you expect all earnings to be distributed to stockholders at the end of each year‚ so that common equity also remains stable for all future years (assumes clean surplus). Also‚ assume the company’s β = 1.5‚ the market risk premium is 4% and the 20-30 year yield on risk free treasury bonds is 5%. Finally‚ assume the company has 1‚000 shares of common stock outstanding.
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future growth of the company and this will be reflected on the future ROE. Growth in book value of the equity: the growth of equity base in positive value project will increase the equity value to book multiple. 2. Match the price-to-book equity valuation multiple below with each of the four restaurant business discussed above. What is your reasoning for the matches you selected? WShen making the matching‚ my reasoning based on the following factors: Financial
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LECTURE 7 BOND VALUATION CLASS QUESTIONS Information for 1 & 2 Consider the following $1‚000 par value zero-coupon bonds: Bond Years to Maturity Price A 1 $909.09 B 2 $811.62 C 3 $711.78 D 4 $635.52 1). The yield to maturity on bond A is . a. 10% b. 11% c. 12% d. 14%
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LECTURE 8 STOCK VALUATION CLASS QUESTION 8 1. Dividend yield example: If two companies both pay annual dividends of $1 per share‚ but ABC company’s stock is trading at $20 while XYZ company’s stock is trading at $40. In which company would an investor prefer to investment based on its dividend yield? 2. If the stock market is semi-strong efficient‚ which of the following statements is correct? a. All stocks should have the same expected returns; however‚ they may have different realized returns
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Question 1 Susan Plumb is the supervisor of her firm’s research department. Her firm has been seeking the mandate to underwrite Wings Industries’ proposed secondary stock offering. Without mentioning that the firm is seeking the mandate‚ she asks Jack Dawson to analyze Wings common stock and prepare a research report. After reasonable effort‚ Dawson produces a favorable report on Wings stock. Plumb then adds a footnote describing the underwriting relationship with Wings and disseminates the report
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Introduction and conclusion for this case. Please refer some company background and data that base on the case for introduction (I put the link for this case on other attachment). I already got the answer for question 1-3. Need a summary of my solution for conclusion. About 2 pages total. Question : Nike‚ Inc.: Cost of Capital 1 What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2 If you do not agree with
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Chapter 7 Activity-Based Costing: A Tool to Aid Decision Making Solutions to Questions 7-1 Activity-based costing differs from traditional costing systems in a number of ways. In activity-based costing‚ nonmanufacturing as well as manufacturing costs may be assigned to products. And‚ some manufacturing costs—including the costs of idle capacity--may be excluded from product costs. An activity-based costing system typically includes a number of activity cost pools‚ each of which has its
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Chapter 2- Fundamental principles of value creation Question 1- What was the reason the fast growing company Walgreen and the significantly slower growing company Wrigley‚ Between 1968 and 2007 had nearly the same shareholder return? For example‚ earnings growth alone can’t explain why investors in drugstore chain Walgreens‚ with sales of $54 billion in 2007‚ and global chewinggum maker Wm. Wrigley Jr. Company‚ with sales of $5 billion the same year‚ earned similar shareholder returns between
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Mergers & Acquisitions Questions Q.3 The following are the details on two potential merger candidates‚ Northrop and Grumman‚ in 1993: Northrop Grumman Revenues $4‚400.00 $3‚125.00 Cost of Goods Sold (w/o Depreciation) 87.50% 89.00% Depreciation $200.00 $74.00 Tax Rate 35.00% 35.00% Working Capital 10% of Revenue 10% of Revenue Market Value of Equity $2‚000.00 $1‚300.00 Outstanding Debt $160.00 $250.00 Both firms are in steady state and are expected to grow 5% a year in the long term. Capital spending
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VALUATION TECHNIQUES Vault Guide to Finance Interviews Valuation Techniques How Much is it Worth? Imagine yourself as the CEO of a publicly traded company that makes widgets. You’ve had a highly successful business so far and want to sell the company to anyone interested in buying it. How do you know how much to sell it for? Likewise‚ consider the Bank of America acquisition of Fleet. How did B of A decide how much it should pay to buy Fleet? For starters‚ you should understand that the value
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