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QUESTIONS PAGE-- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41
Questions Set 32:
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How should investors and management view EVA and FCF? Pick a publically traded company. Go to the company Web site. Try one that you are familiar with—you shop at their store, eat at their restaurants, or wear their clothes. On their Web site, try to find their annual financial report. If you cannot find it on their site, do an Internet search. Sometimes these are found under Investor Relations on a company's site. Yahoo finance is also a good source. If you still cannot find the annual report, try another search until you find one (for example, search for “GAP Annual Report”). Search for the economic profit, EVA, and free cash flow in the firm’s annual report, and discuss your findings. Discuss the firm’s operations as indicated by their annual report. You must submit your backup in Excel or other supporting documentation showing how answers were reached. EVA=EBIT (1-T)- (Total investors capital x after-tax cost of capital) Free Cash Flow = EBIT(1-T) + Depreciation - (Capital Expenditures+ Increase in Net Working Capital)
Questions Set 33:
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You have held conversations with Precision Part's leaders and obtained the following information, which you want to use in the development of a 4-year strategic management plan. PPQ Parts employees now number 5,000, and all are currently employed in the United States. It plans to grow to 10,000 employees in 4 years. New facilities will be needed in international expansion, and PPQ Parts anticipates building most of those (80%) outside the United States. PPQ Parts holds 5% of the world market share on small SUVs, but its goal is 9% in 4 years. Current stock price is $10 per share. The goal is $22 a share. Profit margin 3-year average is 6%. Industry average during this time has also been 6%. The company goal is 13% in 4 years. PPQ Parts has averaged 28% employee turnover during the last 3 years. This is compared to an industry average of 25%. The company’s goal is to increase employee retention by lowering annual turnover to 17%. PPQ Parts contributes to all the local communities in which it is doing business. This is one of its corporate values. Current charity is 0.5% of total profits, but the company would like to raise that to 5% in 4 years. Assignment A strategic management plan is vital for the company business today. Review the company scenario at the beginning of the course for additional information regarding growth goals. Create a basic strategic management plan for PPQ Parts including quantifiable goals and measures. Include the following in your report: Provide environmental scanning of current conditions in the area of expansion including economy, competition, political stability, and so forth. Address internal resource analysis such as managerial and financial strengths and weaknesses. Please include short-term and long-term strategic goals. Location consideration for implementation is vital. Please explain the benefits and limitations for expansion in your chosen area.
Questions Set 34: Follow @AcademicHelp1
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Ch 17 B1. |
(Choosing financial targets) Bixton Company’s new chief financial officer is evaluating Bixton’s capital structure. She is concerned that the firm might be underleveraged, even though the firm has larger-than-average research and development and foreign tax credits when compared to other firms in its industry. Her staff prepared the industry comparison shown here.
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Ch 18 A10. |
(Dividend adjustment model) Regional Software has made a bundle selling spreadsheet software and has begun paying cash dividends. The firm’s chief financial officer would like the firm to distribute 25% of its annual earnings (POR = 0.25) and adjust the dividend rate to changes in earnings per share at the rate ADJ = 0.75. Regional paid $1.00 per share in dividends last year. It will earn at least $8.00 per share this year and each year in the foreseeable future. Use the dividend adjustment model, Equation (18.1), to calculate projected dividends per share for this year and the next four. |
Ch 18 B2. |
(Dividend policy) A firm has 20 million common shares outstanding. It currently pays out $1.50 per share per year in cash dividends on its common stock. Historically, its payout ratio has ranged from 30% to 35%. Over the next five years it expects the earnings and discretionary cash flow shown below in millions.
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Ch 20 A2. |
(Comparing borrowing costs) Stephens Security has two financing alternatives: (1) A publicly placed $50 million bond issue. Issuance costs are $1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20-year life. (2) A $50 million private placement with a large pension fund. Issuance costs are $500,000, the bond has a 9.25% annual coupon, and the bond has a 20-year life. Which alternative has the lower cost (annual percentage yield)? |
Ch 21 C2. |
(Leasing, taxes, and the time value of money) The lessor can claim the tax deductions associated with asset ownership and realize the leased asset’s residual value. In return, the lessor must pay tax on the rental income.
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Questions Set 35: Follow @AcademicHelp1
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1-- A $1,000 face value bond has a remaining maturity of 13 years and a required return of 6.6%. The bond’s coupon rate is 6.0%. What is the fair value of this bond? (Remember that bond interest is paid twice a year.)
2--Assume IBM is expected to pay a total cash dividend of $5.40 next year and its dividends are expected to grow at a rate of 4% per year forever. Assuming annual dividend payments, what is the current market value of a share of IBM stock if the required return on IBM common stock is 12%?
3--Target company’s $3.26 preferred is selling for $54.30. The preferred dividend is nongrowing. What is the required return on Target’s preferred stock?
4-- Suppose JC Penneys has nonmaturing (perpetual) preferred stock outstanding that pays a $1.56 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?
5—Chevron Oil has many bonds trading on the New York Stock Exchange. Suppose Chevron’s bonds have identical coupon rates of 5.7% but that one issue matures in 1 year, one in 6 years, and the third in 14 years. Assume that a coupon payment was made yesterday.
a. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?
b. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?
c. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 11%. Now what is the fair price of each bond?
d. Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer- versus shorter-maturity bonds?
6-- You buy a very risky bond that promises a 7.5% coupon and return of the $1,000 principal in 10 years. You pay only $550 for the bond.
a. You receive the coupon payments for three years and the bond defaults. After liquidating the firm, the bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is the realized return on your investment?
b. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?
7-- Silvertar is a profitable firm that is not paying a dividend on its common stock. Frank Lambster, an analyst for A. G. Edwards, believes that Silvertar will begin paying a $3.00 per share dividend in two years and that the dividend will increase 4% annually thereafter. Kent Mitchell, one of Franks’ colleagues at the same firm, is less optimistic. Bret thinks that Silvertar will begin paying a dividend in four years, that the dividend will be $2.50, and that it will grow at 3% annually. Frank and Kent agree that the required return for Silvertar is 11%.
a. What value would Franks estimate for this firm?
b. What value would Kent assign to the Silvertar stock?
8-- The riskless return is currently 3%, and Texas Instrument has estimated the contingent returns given below
a. Calculate the expected returns on the stock market and on Texas Instrument stock.
b. What is Texas Instrument’s beta?
c. What is Texas Instrument’s required return according to the CAPM?
REALIZED RETURN
State of the Market |
Probability that State Occurs |
Stock Market |
Tex Instru
|
Stagnant |
0.20 |
(10%) |
(15%) |
Slow growth |
0.35 |
10 |
15 |
Average growth |
0.30 |
15 |
25 |
Rapid growth |
0.15 |
25 |
35 |
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