You purchased 250 shares of a particular stock at the beginning of the year at a price of $87.25. The stock paid a dividend of $1.15 per share, and the stock price at the end of the year was $94.86. (4 points)
a) What was the dividend yield?
b) What was the capital gains yield?
In: Finance
We are at the end of the fourth year of the current presidential administration. During the first three and a half years the markets have skyrocketed to new highs. In the past six months the market has been fairly rocky due to the pandemic. What are your expectations for the economy and the financial markets in the next two years? What about the overall economy?
In: Economics
ABC Company is in the process of preparing a budget for the upcoming year. The marketing department has just increased the number of units in the sales budget by a significant 50% as compared to the last sales budget that was prepared for the year. Explain the impact this change will have on the Contribution Margin Income Statement.
Be specific about…
how the components of the Income Statement will be affected.
what company managers must do differently to implement the revised budget.
In: Accounting
The price of a stock is $40. The price of a 1-year European put on the stock with a strike price of $30 is quoted as $7 and the price of a 1-year European call option on the stock with a strike price of $50 is quoted as $5.
(a) Suppose that an investor buys the stock, shorts the call option, and buys the put option. Calculate the profit function and draw a diagram illustrating how the investor's profit or loss varies with the stock price at expiration. Is the graph similar to any of the strategies covered in class? Identify the prices at which you break even with this strategy. What is the most you can win and the most you can lose?
(b) Calculate also the profit function and the profit/loss diagram assuming the investor buys the stock, shorts 2 call options and buys 2 put options.
In: Finance
Assume that we are now at the beginning of year 2020 and are
trying to evaluate Company A using different valuation models.
Answer all of questions below.
1) The current leveraged beta of Company A is estimated to be 2.0
and the marginal tax rate is 40%. The risk-free rate for all the
maturity is 3% and the market risk premium is 6.62%. Its
debt-to-equity ratio is 1.00 currently. Next year, Company A
expects to increase its debt-to-equity ratio to 1.50. Please
calculate Company A’s current cost of equity, and estimate its cost
of equity after it increases its debt-to-equity ratio.
2) Company A is facing a very competitive market condition and the
projected free cash flow to the firm for the next five years are
500 million, 550 million, 600 million, 620 million, 650 million.
Then it is expected to grow at a 3% beyond the fifth year. The WACC
of the firm is estimated to be 10% and will not change in the
future. Please use the “Perpetuity Growth Method” and estimate the
firm’s enterprise value at the beginning of the year
2020(now).
3) The following table presents the EV/EBITDA information about
Company A’s comparable companies.
Comparable Firm Information
Company Name EV/EBITDA
Company B 8.5 Company C 8.0 Company D 7.8
Besides, we also know that the EBITDA of Company A is 1500 million
and its net debt is 6500 million. Its number of fully diluted
shares is 100 million. Please estimate the firm’s share price range
(+/- 1*standard deviation).
In: Finance
The current price of a stock is $48. In 1 year, the price will be either $55 or $31. The annual risk-free rate is 6.6%. Find the price of a call option on the stock that has a strike price of $50 and that expires in 1 year. ( Use daily compounding.)
Inputs
P0 = ? u = ?
X = ? d = ?
Cu = ? Pu = ?
Cd = ? Pd = ?
| Use the Binomial Model 4-step approach | ||||
| Step 1 | Ns | = | ||
| Step 2 | Payoff | = | ||
| Step 3 | PV(payoff) | = | ||
| Step 4 | Price for N shares | = | ||
| Vc | = | |||
| Use the Binomial Model Formula Approach (single-period, thus n=1) | ||||
| ert/n | = | |||
| πu | = | |||
| πd | = | |||
| Vc | = | |||
| Use the same Binomial Formula to price an option with the same chararistics but with strike price of $45. | |||||||
| Cu | = | ||||||
| Cd | = | ||||||
| Vc | = | ||||||
In: Finance
1) An investment will pay $205,000 at the end of next year for an investment of $183,000 at the start of the year. If the market interest rate is 8% over the same period, should this investment be made?
2) Suppose you receive $100 at the end of each year for the next three years. a. If the interest rate is 8%, what is the present value of these cash flows? Compute the PV of this annuity both as the sum of PV of each cash flow and using the annuity formula.
In: Finance
You are offered an investment with returns of $ 1,857 in year 1, $ 3,732 in year 2, and $ 4,485 in year 3. The investment will cost you $ 8,615 today. If the appropriate Cost of Capital (quoted interest rate) is 12.5 %, what is the Net present Value of the investment? Enter your answer to the nearest $.01. Do not use the $ sign or commas in your answer. If the NPV is negative, use the - sign.
In: Finance
You are offered an investment with returns of $ 1,758 in year 1, $ 3,380 in year 2, and $ 3,106 in year 3. The investment will cost you $ 7,198 today. If the appropriate Cost of Capital (quoted interest rate) is 6.1 %, what is the Net present Value of the investment? Enter your answer to the nearest $.01. Do not use the $ sign or commas in your answer. If the NPV is negative, use the - sign.
In: Finance
Suppose that the economy is currently experiencing a recession and that revenues for the current year are equal to expenditures.
a. What is the budget deficit in this case?
b. How would a cyclically adjusted budget deficit be different? Explain.
In: Economics