East Side Corporation is expected to pay the following dividends over the next four years: $16, $12, $11, and $6.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 12 percent, what is the current share price?

What should Susan do?

Given a 4% required return, what is a $100 cash flow today, a $1,000 cash flow at the end of 1 year, and a $100,000 cash flow at the end of five years, worth to you TODAY? Referring to the question above, what would those same cash flows be worth to you at the end of five years?

Problem 2-21 Financial Statements [LO1]

Problem 2-17 Accounting Values versus Cash Flows [LO2]

1. You work on a FX trading desk. A client calls and asks you the deposit rate you can guarantee them in the Malaysian Ringgit (MYR) currency for one year. You have the below information. What deposit rate can you offer the client as a guarantee you can secure them? Your main funding currency is USD. Answer in percentage points to the fourth decimal (e.g. 2.5000% is 2.5000).

USD/MYR Spot:    4.1090

USD/MYR 1-yr Forward FX: 4.1695

USD 1yr Interest Rate: 2.4400%

2. You are analyzing the returns of an investment fund over the last 2 years. Returns and inflation during that time are listed below in the table. What was the real return during year 1? Answer in percentage points to the nearest 4th decimal.

  Return   Inflation

Year 1 7.20% 3.90%

Year 2 2.10%. 4.20%

Some accountants think that the Statement of Cash Flows is the most important financial statement. Do you agree or disagree with this? Why or why not? Hint - consider a business that is highly cyclical in nature like an ice cream shop!

assignments for the corresponding assignment.

1. Use the following balance sheet and cash flow information to determine the net worth and net surplus for an individual in a recent month:

Liquid Assets $15,000

Home Value $220,000

Investment assets: $120,000

Personal Property $30,000

Total assets: $385,000

Short Term Debt: $7000 ($250 a month)

Monthly Mortgage Payment $1400 on a $180,000 mortgage

Total Debt: $187,000

Monthly Gross Income: $11,000

Monthly Disposable Income $ 4000

Monthly Expenses: $7000

2. Now that the individual in question 1 has a better understanding of their situation, let’s analyze further. Given the balance sheet and cash-flow statement information in question 1, calculate the following ratios see page 87:

Liquidity Ratio

Asset-to-Debt Ratio

Debt-to-Income Ratio

Debt payments-to-disposable income ratio

Investment assets-to-total assets ratio

Nonannual Compounding

It is now January 1. You plan to make a total of 5 deposits of $400 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 12% but uses semiannual compounding. You plan to leave the money in the bank for 10 years. Do not round intermediate calculations. Round your answers to the nearest cent.

1. How much will be in your account after 10 years?

   $ ___________

2. You must make a payment of $1,992.04 in 10 years. To get the money for this payment, you will make five equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 12% with quarterly compounding. How large must each of the five payments be?

   $ _____________

As an investor, what would you look for in an annual report? Why are the notes to the financial statements so important?

Amanda, who is in the 32% marginal tax bracket, must decide between two investment opportunities, both of which require an initial cash outlay of $150,000 at the beginning of year 1. Investment A: This investment will yield $25,500 before-tax cash flow at the end of years 1, 2 and 3. This cash represents ordinary taxable income. At the end of year 3, Amanda can liquidate the investment and recover her $150,000 cash outlay. She must pay a nondeductible (for tax purposes) $750 annual fee at the end of years 1, 2, and 3 to maintain Investment A. Investment B: This investment will not yield any before-tax cash flow during the period over which Amanda will hold the investment. At the end of year 3, Amanda will be able to sell Investment B for $215,000 cash. Her $65,000 profit on the sale will be a capital gain. Required: Assuming a 6% discount rate and end-of-year tax payments, determine which investment has the greater net present value.

Good day, I trust you are well. Kindly assist with below...

The company is an online retailer of books, CDs and DVDs. The company was set up five years ago by a wealthy entrepreneur, David Nile, and has now grown to the point where the board of directors have decided that a listing should be sought on the local stock exchange. David Nile owns 80% of the ordinary shares and has agreed to sell all of these as part of the public offering.

Recently, the board of directors began to debate the future dividend policy of the company, assuming the stock exchange listing would be successful. However, there was a clear divergence of views. The chairman felt that the current dividend policy was unacceptable and needed to be changed. He argued that the company had been investing heavily in its distribution methods and in advertising in the early years and that dividend policy had not been a pressing issue. However, the proposed listing must now lead to a reconsideration of the importance of dividends. The chief operating officer, on the other hand, felt that the chairman’s concerns were unfounded as the pattern of dividends had no effect on the shareholder wealth.

Information concerning the company since it was first set up is as follows:

3.1 Evaluate the views expressed by the chief operating officer and by the Chairman. (12)

3.2 Analyse the dividend policy that has been pursued to date and discuss whether a change would be in the interests of shareholders. (8)

3.3 Discuss the key points that should be considered when establishing an appropriate dividend policy for the company. (5)