A plc is a medium sized listed company. The results for 5 years to 31 December 2019 are as follows:

Dividends are paid on 31 December each year and the dividend shown as declared in a particular year would have been or will be paid on 31 December the following year. If the current dividend policy is maintained, the directors estimate that annual growth in earnings and dividends will no better than the average growth in earnings over the past four years.

X plc does not consider to take on debt at the present time to finance growth. The company is considering a change in its dividend policy and total investment programme to allow 50% of its earnings to be retained for identified capital investment projects which are estimated to have an average post-tax return of 15%. The market risk premium is expected to be 4% over the risk-free rate of 6%. The company’s is currently quoted at 1.5 and is not expected to change for the near future.

Required:

1. Calculate the share price which might be expected by the market

1. If the company does not announce a change in dividend policy
2. If the company does announce a change in dividend policy using whatever model you think appropriate.

1. Comment on the limitations of the models you have used. (Word limit: 100 words).
2. Discuss the reasons why the share price might react differently from the market’s expectations. (Word limit: 100 words).

Gladstone Corporation is about to launch a new product. Depending on the success of the new? product, Gladstone may have one of four values next? year: $ 153 ?million, $ 139 ?million, $ 95 ?million, and $ 79 million. These outcomes are all equally? likely, and this risk is diversifiable. Suppose the? risk-free interest rate is 5 % and? that, in the event of? default, 30 % of the value of? Gladstone's assets will be lost to bankruptcy costs.? (Ignore all other market? imperfections, such as? taxes.)

a. What is the initial value of? Gladstone's equity without? leverage? Now suppose Gladstone has? zero-coupon debt with a $ 100 million face value due next year. round to two decimal place

b. What is the initial value of? Gladstone's debt? round to two decimal place

c. What is the? yield-to-maturity of the? debt %? round to two decimal place .

What is its expected? return % ?   round to the nearest integer

d. What is the initial value of? Gladstone's equity? round to two decimal place

What is? Gladstone's total value with? leverage? round to two decimal place

Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

e. If Gladstone does not issue? debt, what is its share? price? round to the nearest cent

f. If Gladstone issues debt of $ 100 million due next year and uses the proceeds to repurchase? shares, what will its share price? be? round to nearest cent

Why does your answer differ from that in part ?(e?)?

CompDesk, Inc., makes a single model of an ergonomic desk (with chair) for computer usage. The desk is manufactured in building 1, and the chair is manufactured in building 2. Monthly capacities and production levels are as follows.

The company will sell a desk only with a chair and can sell 500 desks per month. The units (desk with chair) sell for $279 each and have a variable cost of $118 each.

Required:

a. Is there a bottleneck at CompDesk in Building 1 or Building 2?

b. CompDesk’s production supervisors state they could increase building 1’s capacity by 100 desks per month by producing desks on the weekend. Producing on the weekend would not affect the sales price. Variable cost per unit would increase by $18 for those produced on the weekend because of the premium paid to labor. Fixed costs would also increase by $18,600 per month.

b-1. Calculate the differential operating profit (loss).

b-2. Should CompDesk produce desks on the weekend?

c. Independent of the situation in requirement (b), CompDesk could add additional equipment and workers to building 1, which would increase its capacity by 100 desks per month. This would not affect the sales price or variable cost per unit but would increase fixed costs by $14,300 per month.

c-1. Calculate the differential operating profit (loss).

c-2. Should CompDesk add the additional equipment and workers to building 1?

Compost Science Inc. (CSI) is in the business of converting Boston’s sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSI a 15% book return on equity. At the end of the year, CSI is expected to pay a $4 dividend. It has been reinvesting 30% of earnings and growing at 4% a year.

a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.)
Rate of return= 8%(Correct answer)

a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Present value of growth opportunities= 28.63(Corect answer)

b. Now the MDC announces a plan for CSI to treat Cambridge sewage. CSI’s plant will, therefore, be expanded gradually over five years. This means that CSI will have to reinvest 60% of its earnings for five years. Starting in year 6, however, it will again be able to pay out 70% of earnings. What will be CSI’s stock price once this announcement is made and its consequences for CSI are known? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answers of a-1 and a-2 are correct I need the answer of part b. Thank you.

Green Thumb, a manufacturer of lawn care equipment, has introduced a new product. The anticipated demand is normally distributed with a mean of m = 100 and a standard deviation of s = 40. Each unit costs $150 to manufacture and the introductory price is to be $200 to achieve this level of sales. Any unsold units at the end of the season are unlikely to be very valuable and will be disposed off in a fire sale for $50 each. It costs $20 to hold a unit in inventory for the entire season. How many units should Green Thumb manufacture for sale? What is the expected profit from this policy? On average, how many customers does Green Thumb expect to turn away because of stocking out? Input the data from the problem into the Input section of the spreadsheet and respond to the three questions posed in the problem. Expand upon the solution by considering the following: Green Thumb has investigated ways to improve its profitability. Option 1: they have found an outlet that will pay them $60 per unit for overstocks. Option 2: they are exploring raising the price from $200 to $230 per unit. However, the mean demand is expected to drop from 100 to 70. Option 3 involves a retrofit to their manufacture process that would reduce unit cost from $150 to $130. However, the cost of the retrofit adds back $10 to each unit. By manipulating the input data, determine the Cu, Co, CSL, EO, EU and profit for each option individually and in any combination. Which would you choose and why? SHOW A SUMMARY TABLE OF YOUR STUDY IN THE EXCEL SPREADSHEET.

Mercury Bag Company produces cases of grocery bags. The managers at Mercury are trying to develop budgets for the upcoming quarter. The following data have been gathered. Projected sales in units 1,960 cases Selling price per case $ 240 Inventory at the beginning of the quarter 150 cases Target inventory at the end of the quarter 100 cases Direct labor hours needed to produce one case 2 hours Direct labor wages $ 10 per hour Direct materials cost per case $ 8 Variable manufacturing overhead cost per case $ 6 Fixed overhead costs for the upcoming quarter $ 220,000

a. Using the above information, develop Mercury's sales forecast in dollars and production schedule in units.

b. What is Mercury's budgeted variable manufacturing cost per case?

c. Prepare Mercury's manufacturing cost budget.

d. What is the projected ending value of the Inventory account?

Mercury Bag Company produces cases of grocery bags. The managers at Mercury are trying to develop budgets for the upcoming quarter. The following data have been gathered.

You are trying to value “A2M” share today (End of June 2019). Assume the current price of the share in the stock market is $17.15 and that you would like to hold the investment for 4 years. Assume that “A2M” will pay its first dividend ($0.5 AUD) one year from now. The total dividend will be paid as a lump sum (at once). After this you also estimate that the dividends will grow respectively at 30%, 25% per year. After that (starting in time 3) you estimate dividends will grow at a constant rate of 5% forever. Assume that today the Australian treasury notes is 1.5%, the market risk premium is 10% and the beta of “A2M” is 0.8. Based on this price would you purchase the share? Why or why not? [9 marks]

3. When Apple introduced its first portable media player, the iPod, its constant marginal cost of producing the top-of-the-line model was $200 (iSuppli), its fixed cost was approximately $736 million, and we estimate that its inverse demand function was p = 600 - 25Q, where Q is units measured in millions. Be sure to express your answers in the proper units, where needed.

a. What was Apple's average cost function?

b. Assuming that Apple was maximizing its short-run monopoly profit, what was its marginal revenue function?

c. What were its profit-maximizing price, quantity, profit and Lerner Index?

d. What was the price elasticity of demand at the profit maximizing level?

Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity 240 000 Bank/cash 90 000 Debt 160 000 Other Assets 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by:

1.1 Calculating the number of shares in issue (4)

1.2 The dividends per share (for the first alternative, i.e. pay the dividend) (2)

1.3 Calculate:

1.3.1 The new share price (6)

1.3.2 The EPS (4)

1.3.3 The price-earnings ratio (4)