Security valuation: equity. Next year, your company expects net income of $44 million. It pays 50% of its earnings out in dividends and has a cost of equity capital of 11%.

a. If your company’s NI has a 7% growth rate, what is the estimated value of your company?

b. What is its re-investment rate (i.e. internal rate of return on earnings retained and reinvested)? Now suppose instead that the company’s re-investment rate (i.e. internal rate of return) on all future retained earnings is only 11%, and continue to assume initial earnings of $44 million.

c. What would be the value of your company if it maintains a dividend payout ratio of 50%?

d. Does the value of the company in c. above change if the payout ratio is reduced to 25%? Why or why not?

e. Find the company’s market capitalization one year from now under each of the two dividend policies described in c. and d. Which payout policy leads to a greater increase in stock price?

f. How can you reconcile the seemingly contradictory results obtained in parts d. and e.?

Provide some specific examples of how firms have chosen to hedge using futures or forward contracts. This could possibly include agricultural operations as well. Be sure to identify the risk the firm is trying to control.

Obtain the most current Balance of Payments (BOP) of Singapore and briefly discuss surpluses or deficits on major accounts. What is the total amount of foreign reserve of this country? Please attach the BOP to your project and highlight all the potential numbers. Thank you!

the antimarino aircraft corp is considering the following two mutually exclusive investment options:

1) annuity revenues each year will be $100. total costs(fixed costs + variable costs) will be $80 each year. ( for simplicity assume there is no depreciation expense. initial net working capital requirements are $20 at start up, and will not grow. the firm will make a capital expenditure of $250 at startup and have annual expenditures of $10 at the end of each year. the project will last 20 years. the firm will have $200 dollars of debt and $200 dollars of equity.

2) growing perpetuity- revenues in the first year will be $100. revenues will grow at 5% per year. total costs will be $80 in the first year and will also grow by 5% per year ( assume no depreciation expense). initial net working capital requirements are $20 at startup and will grow by 5% per year. the firm will make a capital expenditure of $250 start up, plus annual expenditures of $10 at the end of the first year and will grow by 5% per year. the firm will have $300 of debt and $100 of equity.

Regardless of which option they choose, the following facts will hold true:

cost of debt = 7% beta = 1.2

tax rate =25% t note rate =3% market return =14%

which project should they choose?

What mutual funds would you recommend for a 22 year old college graduate who just landed their first real career job? They are making 35,000 dollars a year. They are able to invest 100 dollars every month into their 401K plan. They will retire at age 70. They are young and they are not frightened of risk. They have 48 years to invest. What would you suggest for them? Be very specific in your recommendations.

East Coast Warehouse Club   

Frank​ O'Connor, CFO of East Coast Warehouse​ Club, was reviewing notes from the annual​ shareholders' meeting the week before. Most of the meeting was​ routine: greetings from the CEO and chairman of the​ board, review of last​ year's results, plans for the coming​ year, election of directors​ (no surprises), ratification of the​ auditors, and so on. The only unexpected incident occurred during a​ question-and-answer period with the CFO when a major institutional shareholder asked if and when the company expected to start paying dividends. The question was met with loud applause and a few cheers of​ "Hear, hear!" Frank​ answered, not quite​ truthfully, that the matter was being discussed internally and was on the agenda for the next board of​ directors' meeting. In any​ case, it was on the agenda now.

When the directors met the following​ month, they looked over a report they had asked the CFO to compile on the pros and cons of instituting dividends. The report first provided a review of the​ company's financial situation. A recent economic downturn and high energy prices had been devastating for other​retailers, but had actually been good for East Coast because​ hard-pressed consumers looked for the lowest prices on everything from groceries to computers to automobile tires and batteries. East Coast had recently added gas pumps to many locations and could sell gasoline for a few cents less per gallon than other retailers. The gas business was​ thriving, and company research showed that gas sales brought customers to the stores for other purchases. On the other​ hand, East​ Coast's growth policy had become cautious. Its extensive real estate holdings were losing value in a declining​ market, and the company was unwilling to build stores so close together that it would be competing with itself or so far from its regional base that distribution would become inefficient. Ten percent of total assets were now in cash and​ short-term investments. ​ Long-term debt had fallen from 38% of assets a few years ago to less than 22%.

Cash flow from operations was more than double the investment in new assets.

There was no question that East Coast could pay a​ dividend, but should​ it? Frank wondered what some of his bright young staffers long dash—several of whom had used East​ Coast's generous education benefits to obtain MBA —would have to say about this​ question, so he put it on the agenda for the regular Wednesday afternoon staff meeting.

Questions

1.  The following is a partial list of comments made by staffers at the meeting. To help Frank make a​ decision, identify the dividend policy or theory each reflects and comment on its usefulness.

a. ​ "What difference does it make if we pay dividends or​ not? Shareholders can always sell a few shares and make their own​ dividends." ​ Response: ​ "That works for the big​ shareholders, but what about the little​ guys?"

b. ​ "From a tax​ perspective, our shareholders would be better off paying the capital gains tax than paying the tax on​ dividends."

c. ​ "Stock prices go up and down due to market factors we​ can't control. A dividend is something you can count​ on."

d.  ​"Some of our shareholders want dividends. You heard that at the​ shareholders' meeting." ​ Response: ​ "That's right, ​ but, of​ course, maybe some of them​ don't. They might prefer that we try to grow the business​ faster."

e. ​ "Our business has been doing​ well, but​ we're in tough times. A lot of retailers are​ hurting, and the market is down. By paying a​ dividend, we send a message to our shareholders that we expect to stay strong for the foreseeable​ future."

f.  ​"Before we think of paying​ dividends, we should be sure we have enough cash to cover our operating expenses and capital​ budget." ​ Response: ​ "That's right, and once we start paying​ dividends, we will never be able to cut​ them."

2.  When Frank thought he had gathered enough ideas about dividend theory and​ policy, he asked the following​ question: ​ "Let's say we decide that our shareholders want some kind of distribution. ​ What's the best way to do​ it?" Evaluate the merits of the following suggestions.

a. ​ "How about a 20% or 30% stock​ dividend? They will feel as if​ they're getting​ something, and it​ won't use any​ cash."

What mutual funds would you recommend for a 40 years old single man who is saving for his retirement? He hopes to retire at age 70. He is a moderate risk taker. He will definitely need these funds for living expense, after retirement. Be very specific in your recommendations.

What mutual funds would you recommend for a 65 year old retired school teacher who is extremely conservative in her investing? She doesn’t want to lose one dollar. She has retirement money to live on but she is concerned about inflation and taxes. What recommendations do you have for her? Be very specific in your recommendations. She has 100,000 dollars to invest and hopes to never need the money, but needs to know it is there for a rainy day.

Faleye Consulting is deciding which of two computer systems to purchase. It can purchase state-of-the-art equipment (System A) for $19,000, which will generate cash flows of $10,000 at the end of each of the next 6 years. Alternatively, the company can spend $14,000 for equipment that can be used for 3 years and will generate cash flows of $10,000 at the end of each year (System B). If the company’s WACC is 10% and both “projects” can be repeated indefinitely, which system should be chosen, and what is its EAA? Do not round intermediate calculations. Round your answer to the nearest cent.

Consider two portfolios from the Capital Market Line (CML), A and B, given the following information:

Portfolio A: has an expected return of 10% and a standard deviation of 24%.

Portfolio B: has an expected return of 10.6% and a standard deviation of 26%.

a) Illustrate the CML, indicating portfolio A and B on CML.

b) What is the Sharpe ratio of portfolios located on the CML?

c) What is the risk-free rate?

d) Another portfolio, P, has an expected return of 9% and a standard deviation of 20%. Is this portfolio correctly priced?

27. Determine a venture’s sustainable growth rate based on the following information: sales = $1,000,000; net income = $150,000; common equity at the end of last year = $520,000; and the dividend payout percentage = 20%.

                        a.   10%

                        b.   16%

                        c.   20%

                        d. 24%

                        e.   30%

What would be your recommendations with respect to raising a huge additional funding of £50 million to enable the next stage of development of international projects to be carried out by a corporation?

a. Assuming that the expectations hypothesis is valid, compute the price of the four-year bond shown below at the end of (i) the first year; (ii) the second year; (iii) the third year; (iv) the fourth year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Beginning of Year Price of Bond Expected Price

1 $973.40

2 $913.47

3 $862.62

4 $778.66

b. What is the rate of return of the bond in years 1, 2, 3, and 4? Conclude that the expected return equals the forward rate for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Financing Deficit

Garlington Technologies Inc.'s 2016 financial statements are shown below:

Balance Sheet as of December 31, 2016

Income Statement for December 31, 2016

Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $136,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 14%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

Forecasted Statements and Ratios

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2016, is shown here (millions of dollars):

Sales for 2016 were $475 million and net income for the year was $14.25 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.7 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017. Do not round intermediate calculations.

1. If sales are projected to increase by $60 million, or 12.63%, during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
   $ million
   
2. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
   %
   
3. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt).
   Assume Upton's profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit reported on the 2017 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Round your answers to the nearest cent.

   Upton Computers Pro Forma Balance Sheet December 31, 2017 (Millions of Dollars)
   Cash	$
   Receivables	$
   Inventories	$
   Total current assets	$
   Net fixed assets	$
   Total assets	$
   Accounts payable	$
   Notes payable	$
   Line of credit	$
   Accruals	$
   Total current liabilities	$
   Mortgage loan	$
   Common stock	$
   Retained earnings	$
   Total liabilities and equity	$