Financial Management, business and finance homework help

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1. When managers have little or no ownership in the firm, they are less likely to work energetically for the company's shareholders. We call this type of conflict a(n) 2. Calculating rates of return) The common stock of Placo Enterprises had a market price of $8.34 on the day you purchased it just one year ago. During the past year, the stock had paid a dividend of $0.54 and closed at a price of $11.47. What rate of return did you earn on your investment in Placo's stock? (Round to two decimal places.) 3. (DuPont analysis) Dearborn Supplies has total sales of $150 million, assets of $109 million, a return on equity of 30 percent, and a net profit margin of 7.6 percent. What is the firm's debt ratio? 4. (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Common Stock A Probability 0.35 0.30 0.35 Common Stock B Return Probability Return 12% 0.25 -6% 17% 0.25 8% 18% 0.25 13% 0.25 20% a.Given the information in the table, what is the expected rate of return for stock B?. b.What is the standard deviation of stock B?. c.What is the expected rate of return for stock A?. d.Based on the risk (as measured by the standard deviation) and return of each stock which investment is better? (Round to 2 decimal places). 5. (Bond valuation) The 8-year $1,000 par bonds of Vail Inc. pay 12 percent interest. The market's required yield to maturity on a comparable-risk bond is 7 percent. The current market price for the bond is $1,130. a.What is your yield to maturity on the Vail bonds given the current market price of the bonds? (Round to two decimal places.). b.What should be the value of the Vail bonds given the yield to maturity on a comparable risk bond? (Round to the nearest cent.). c.Should you purchase the bond at the current market price?. 6. NPV, PI, and IRR calculations) Fijisawa, Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $1,960,000, and the project would generate cash flows of $380,000 per year for six years. The appropriate discount rate is 4.0 percent. a.Calculate the net present value..b.Calculate the profitability index..c.Calculate the internal rate of return..d.Should this project be accepted? Why or why not?. 7. (Cost of preferred stock) The preferred stock of Walter Industries Inc. currently sells for $35.67 a share and pays $3.49 in dividends annually. What is the firm's cost of capital for the preferred stock? 8. (Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 8.1 percent annual interest and matures in 15 years. Investors are willing to pay $948 for the bond and Temple faces a tax rate of 32 percent. What is Temple's after-tax cost of debt on the bond? 9. (Weighted average cost of capital) In the spring of last year, Tempe Steel learned that the firm would need to re-evaluate the company's weighted average cost of capital following a significant issue of debt. The firm now has financed 33 percent of its assets using debt and 57 percent using equity. Calculate the firm's weighted average cost of capital where the firm's borrowing rate on debt is 7.9 percent, it faces a 34 percent tax rate, and the common stockholders require a 19.7 percent rate of return. 10. (Weighted average cost of capital) The target capital structure for QM Industries is 37 percent common stock, 8 percent preferred stock, and 54 percent debt. If the cost of common equity for the firm is 17.6 percent, the cost of preferred stock is 10.6 percent, the before-tax cost of debt is 7.7 percent, and the firm's tax rate is 34 percent, what is QM's weighted average cost of capital?
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Student’s name
Professor name
Course
Date
Financial Management
Question 1
Agency Problem.
Question 2.
Rate of return = dividend yield + capital gains yield.
Dividend yield = 0.54/8.34 = 6.47%
Capital gains yield = (11.47 – 8.34)/ 8.34 = 37.5%
Total return = 6.47% + 37.5% = 43.97%
Question 3: DuPont analysis
DuPont ROE = Net profit margin * Total assets turnover * Equity multiplier.
Net profit margin = 7.6%
Total sales =150 million
Assets of $109 million
Return on equity of 30 percent.
30% = 7.6% * (150/109) * Equity multiplier.
30% = 7.6% * 1.38 * EM
EM = 2.86
Equity multiplier = Total assets ÷ Total equity.
2.86 = 109 ÷ Equity
Equity = 38.1%
Debt ratio = 1 - 38.1% = 61.9%
Question 4: Expected rate of return and risk.

a) Expected rate of return for stock B
= (-6% × 0.25) + (8% × 0.25) + (13% × 0.25) + 20% × 0.25) = 8.75%

b) Standard deviation of st...


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