A company is going public at $20 and will use the ticker XYZ. The underwriters will charge a 7 percent spread. The company is issuing 16 million shares, and insiders will continue to hold an additional 32 million shares that will not be part of the IPO. The company will also pay $2.5 million of audit fees, $3.5 million of legal fees, and $900,000 of printing fees. The stock closes the first day at $23. What are the total costs of going public for XYZ as a percentage of the total pre-cost equity value? In calculating the pre-cost equity value, use the closing price of the stock at the end of the first day as the pre-cost equity value. Include underpricing in the calculation of the total costs of the offering. Do not round intermediate calculations. Round your answer to two decimal places.

Sean Thornton has invested in a convertible bond issued by Cohn Enterprises The conversion ratio is 20. The market price of Cohan common stock I $60 per share. The face value is $1000. The coupon rate is 8 percent and the annual interest is paid until the maturity date 10 years from now. similar nonconvertible bonds are yielding 12 percent (YTM) in the marketplace. a.)Calculate the straight bond value of this bond. b.) Calculate the conversion value of the Cohan Enterprises convertible bond. Please do not use Excel or any other programs to compute. Thank you.

You are considering buying a beach house as an investment property. The price today for the
beach house is $240,000. You can fully depreciate the house on a straight-line basis over a
thirty year period (and deduct this depreciation expense from your income taxes). The rent
you will charge on an annual basis will be $10,000. You will face maintenance costs of
$2,000 every year (also tax deductible). You intend to sell the property in ten years, and you
expect that during the next ten years the market value of the property will appreciate at an
annual rate of 5%. Assume that the tax rate for income on the property is 40%, and the tax
rate for capital gains on the property is 20%. Also, assume that the appropriate discount rate
for your calculations is 12%.

a) What is the NPV of the purchase of the property?
b) What is the IRR of the purchase of the property? Could you predict whether the IRR was
higher or lower than 12% without calculating it? If so, how?

Question 4:

Footwear Inc. manufactures a complete line of men’s women’s dress shoes for independent merchants. The average selling price of its finished product is $84 per pair. The variable cost for this same pair of shoes is $42. Footwear Inc. incurs fixed costs of $168,000 per year.

a) Calculate the profit or loss at the following units of production sold: 7,000 pairs of shoes? 9,000 pairs of shoes? b) Calculate the operating leverage. c) What is the meaning of operating leverage? Explain how operating leverage affects both profitability and risk of the firm.

1.A stock is currently trading for $35. The company has a price–earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $40. The company announces that it will use $340 million to repurchase shares.

1. After the repurchase, what is the value of the stock, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

2. After the repurchase, what is the actual price–earnings multiple of the stock? Do not round intermediate calculations. Round your answer to two decimal places.

3. If the company had used the $340 million to pay a cash dividend instead of doing a repurchase, how would the value of the stock have changed, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent.

   The market value of the stock is now $   .

2.A stock is currently trading for $33. The company has a price–earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $28. The company announces that it will use $350 million to repurchase shares.

1. After the repurchase, what is the value of the stock, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

2. After the repurchase, what is the actual price–earnings multiple of the stock? Do not round intermediate calculations. Round your answer to two decimal places.

3. If the company had used the $350 million to pay a cash dividend instead of doing a repurchase, how would the value of the stock have changed, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent.

   The market value of the stock is now $   .

4. If the company had used the $350 million to pay a cash dividend instead of doing a repurchase, what would be the actual price–earnings multiple after the dividend? Do not round intermediate calculations. Round your answer to two decimal places.

Bonnie and Clyde the Houston’s company's pension fund management division, with Bonnie having responsibility for fixed income securities (primarily bonds) and Clyde being responsible for equity investments. A major new client, Ms. Victoria, has requested that Houston Company present an analysis of Sugar Land Company (SLC) she is considering to purchase.

Assume that Sugar Land (SLC) has a beta coefficient of 1.2, that the risk-free rate (the yield on 10-year Treasury-Note) is 7 percent, and that the market risk premium is 5 percent, (Survey of all analysts).

1. According to CAPM, what is the required rate of return on SLC’s stock?
2. Assume that Sugar Land is a constant growth company whose last dividend D0, was $2.0, and whose dividend is expected to grow indefinitely at a 6 percent rate.

Answer the followings:                                                                                   

a. What is the firm’s expected dividend stream over the next 3 years?             
b. What is the firm’s current stock price?
c. What is the stock's expected value 1 year from now?            
d. What is the expected dividend yield, the capital gains yield, and the total return during the first year?       
  
3. Now assume that the stock is currently selling at $30.29. No, other changes.

a. What is the expected rate of return on the stock?
b. What would the stock price be if its dividends were expected to have zero growth? (Zero growth model, K is the same but g=0)

A stock has a required return of 9%; the risk-free rate is 3%; and the market risk premium is 3%.

1. What is the stock's beta? Round your answer to two decimal places.
2. If the market risk premium increased to 8%, what would happen to the stock's required rate of return? Assume the risk-free rate and the beta remain unchanged.
   1. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
   2. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
   3. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
   4. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
   5. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.

-Select-

New stock's required rate of return will be %. Round your answer to two decimal places.

The MIT Whitehead Institute must choose between two cDNA microarray machines to expand their high-throughput genomic laboratory. Both of these machines have the same function, and the firm will only choose one vendor from which to purchase their machines.

The first machine, manufactured by Amersham Pharmacia (machine 1), will cost $350,000. The second machine, manufactured by PE Applied Biosystems (machine 2), will cost $300,000.

The cost of capital for both of these investments is 9.5%. The life for both machines is estimated to be 5 years. During this period, cash flows for machine 1 will be $17,000 per year and cash flows for machine 2 will be $8,000 per year. These cash flows include depreciation expenses.

Calculate the NPV and IRR for each machine using MS Excel. Then, select the best choice for the MIT Whitehead Institute. Under your analysis, briefly explain the reasoning for your decision and how it might impact operations over the next five years

A call option with a strike price of $65 costs $8. A put option with a strike price of $58 costs $9. 1) How can a strangle be created? 2) With the strangle created above, what is the profit/loss if the stock price is $41? 3) With the strangle created above, when would the investor gain a positive profit?

Maggie's Muffins Bakery generated $4,000,000 in sales during 2016, and its year-end total assets were $2,600,000. Also, at year-end 2016, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2017, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 4%, and its payout ratio will be 60%. How large a sales increase can the company achieve without having to raise funds externally—that is, what is its self-supporting growth rate? Do not round intermediate calculations. Round your answers to the nearest whole.

Sales can increase by $ ,  that is by %.

Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public​ offering, managers at Nabor have decided to make their own estimate of the​ firm's common stock value. The​ firm's CFO has gathered data for performing the valuation using the free cash flow valuation model.

The​ firm's weighted average cost of capital is 12%​, and it has $1,970,000 of debt at market value and $390,000

of preferred stock in terms of market value. The estimated free cash flows over the next 5​ years, 2020 through 2024​,

are given in the​ table,

Beyond 2024 to​ infinity, the firm expects its free cash flow to grow by 3% annually.

2020   $220,000
2021   $280,000
2022   $320,000
2023   $390,000
2024   $430,000

a.  Estimate the value of Nabor​ Industries' entire company by using the free cash flow valuation model.

b.  Use your finding in part a, along with the data provided​ above, to find Nabor​ Industries' common stock value.

c.  If the firm plans to issue 200,000 shares of common​ stock, what is its estimated value per​ share?

Suppose that the index model for stocks A and B is estimated from excess returns with the following results:

R_A = 5.0% + 1.30R_M + e_A

R_B = –2.0% + 1.60R_M + e_B

σ_M = 20%; R-square_A = 0.20; R-square_B = 0.12

Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio P is composed of 70% Stock A and 30% Stock B.

a. What is the standard deviation of portfolio Q?

b. What is the beta of portfolio Q?

c. What is the "firm-specific" risk of portfolio Q?

d. What is the covariance between the portfolio and the market index?

a. NPV __________________

b. Breakeven numbers of Cartons ___________

c. Breakeven fixed costs______________