Subject | Business |

Due By (Pacific Time) | 12/27/2016 12:00 am |

#1) Using the P/E ratio approach to valuation calculate the value of a shate of stock under the following conditions: .the investor's required rate of return is 12%,.the expected level of earnings at the end of this year (E1) is $8,. the firm follows a policy of retaining 40% of its earnings,.the return of equity (ROE) is 16%, and . similar shares of stock sell at multiples of 10.714 times earnings per share. Now show that you get the same answer using the discounted dividend model (a) the stock price using the P/E ratio valuation method is $-----------(round to the nearest cent) (b) the stock price using the dividend discount model is $------------(round to neatest cent).

#2)Your firm is considering a new investment proposal and would like to calculate its weighted aveerage cost of capital. To help in this , compute the cost of capital for the firm for the following: (a) A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.7% that is paid semiannually. The bond is currently selling for a price of $1,125 and will mature in 10 yrs. the firm tax rate is 34%. (b)If the firm's bonds are not frequebtly traded, how would you go about determining a cost of debt for this company? (c)A new common stock issue that paid a $1.77 dividend last yr. The par value of the stock is $16, and the firm's dividends per share have grown at a rate of 89%per yr. This growth rate is expected to continue into the foreseeable future. The price of the stock is now $28.83. (d) A preferred stock paying a 9.2% dividend on a $125 par value. The preferred shares are currently selling for $50.82. (e) A bond selling to yield 13.9% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

(a) the after tax cost of debt from the firm is-------------%(round to two decimal plac

(b)If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company?(A) It is standard practice to estimate the cost of debt using the yield to maturity on a portfolio of bonds with a similar credit rating and maturity as the firm's outstanding debt. (B) It is standard practice to estimate the cost of debt using the bonds coupon rate and adjust it for inflation.(C) It is standard practice to estimate the cost of debt using the yield to maturity on a treasury bond on the same maturity.(D) It is standard practice to estimate the cost of debt using the average coupon rate on a portfolio of bonds with a similar credit rating and maturity as the firm's outstanding debt.

(c)the cost of common equity for the firm is --------%(round to two decimal places) (d) the cost of preferred stock for the firm is ----------% (round to two decimal places) (e) the after tax cost of debt for the firm is --------%(round to two decimal places)

#3)Compare the cost of capital for the firm for the following: (a) currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.29% while the borrowing firm's corporate tax rate is 34% (b) common stock for a firm that paid a $1.09 dividend last yr. The dividends are expected to grow at a rate of 4.2 % per yr. into the foreseeable future. The price of this stock is now $24.21. (c) A bond that has a $1,000 par value and a coupon interest rate of 11.1% with interest paid semiannually. A new issue would sell for $1,147 per bond and mature in 20 yrs. The firm's tax rate is 34%. (d) A preferred stock paying a dividend of 7.3 % on a $101 par value. If a new issue is offered the shares would sell for $83.14 per share. (a) the after tax cost of debt for the firm is -----------% (round to two decimal places) (b) The cost of common equity for the firm is ---------% (round to two decimal places) (c) The after tax cost of debt for the firm is------------%(round to two decimal places) (d) the cost of preferred stock for the firm is ------------% (round to two decimal places).

#5)Use the following industry average ratios, to construct a pro forma balance sheet for Carlos Menza, Inc. data table total asset turnover 1.9 times

avg. collection period(assume 365 day yr) 9.4 days fixed asset turnover 4.5 times inventory turnover (based on cost of goods sold) 3.4 times current ratio 1.6 times Sales (all on credit) $4.44 million

cost of goods sold 70% of sales

debt ratio 48%

more information : (Pro forma balance Sheet)

cash-----$----------- current liabilities-$-------------inventory---------------- long term debt-----------------acc reivable-------------- total liabilities$------------------net fixed assets----------- common equity-----------------total $-------------------- total $--------------------The company's cost of goods sold is $------------(round to nearest dollar). the company's total assets are $----------(round to nearest dollar). the company's fixed assets are$--------(round to the nearest dollar).the company's acc. receivable is $--------------(round to nearest dollar) the company's inventories are $-----------(round to nearest dollar. the company's current liabilities $------------(round to the nearest dollar) Company's total liabilities $-----------(round to nearest dollar). Complete the balance sheet above.

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