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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...