GBS Company has a debt-to-equity ratio (in market value terms) of 0.65. Its present cost of debt funds is 14 percent, and it has a marginal tax rate of 40 percent. GBS is eyeing the Discount card Business, a field that involves Vendors & market products and marketing services and is considerably different from its own line of business, so the company is looking for a benchmark or proxy company. The Global Max Company, whose stock is publicly traded, dealing only with marketing services. Global Max has a debt-to-equity ratio of 0.40, a beta of 1.19, and an effective tax rate of 0.40.

1. If GBS Company wishes to enter the automated bank teller business, what systematic risk (beta) is involved if it intends to employ the same amount of leverage in the new venture as it presently employs?

2. If the risk-free rate currently is 11 percent and the expected return on the market portfolio is 18 percent, what return should the company require for the project if it uses a CAPM approach?

Given the preceding data, the average realized return on FF’s stock is _______ .

The preceding data series represents _________ of FF’s historical returns. Based on this conclusion, the standard deviation of FF’s historical returns is _______ .

If investors expect the average realized return from 2012 to 2016 on FF’s stock to continue into the future, its coefficient of variation (CV) will be _______.

Abel Corporation uses customers served as its measure of activity. During February, the company budgeted for 36,400 customers, but actually served 27,600 customers. The company uses the following revenue and cost formulas in its budgeting, where q is the number of customers served:

Revenue: $4.90q

Wages and salaries: $34,600 + $1.52q

Supplies: $0.92q

Insurance: $11,800

Miscellaneous expenses: $7,800 + $0.44q

The company reported the following actual results for February:

Required:

Prepare the company's flexible budget performance report for February. Label each variance as favorable (F) or unfavorable (U). (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Consider a portion of monthly return data (In %) on 20-year Treasury Bonds from 2006–2010.

Estimate a linear trend model with seasonal dummy variables to make forecasts for the first three months of 2011. (Round answers to 2 decimal places.)

22. Which of the following is likely to have the highest beta factor?

a. a pet food manufacturer

b. a utility company

c. the market portfolio

d. a construction company

23. A normal investment project has an NPV of +$420,000 when discounted using a discount rate of 10% and an NPV of -$267,000 when using a discount rate of 20%. What is the IRR when calculated using the linear interpolation method?

a. 37.5%

b. 16.1%

c. 20.6%

d. 0%

24. What happens to an expected portfolio return with a beta of 1.9 if the market risk premium reduces from 8% to 6%?

a. It decreases by 2%

b. It decreases by 0.1%

c. It increases by 3.9%

d. It decreases by 3.8%

26. Which of the following statements regarding technical analysts (TA), fundamental analysts (FA) and stock market efficiency is true?

a. TA’s believe that the stock market is weak-form efficient

b. TA’s believe that the stock market is not efficient at any level

c. FA’s believe that the stock market is semi-strong form efficient

d. FA’s believe that the stock market is strong form efficient

27. A company decides to issue some bonds in order to raise the funds required to expand their production facilities. This is an example of:

a. a financing decision only

b. an investment decision only

c. a capital budgeting decision only

d. both an investment decision and a financing decision

28. Fill in the blanks in this statement: ‘Shares issued via an initial public offering (IPO) are issued in the __________ market. Shares traded between investors via a stock exchange are traded in the __________market’.

a   secondary; primary

b. primary; over-the-counter

c. primary; secondary

d. primary; fixed income

29. If it is possible to make money by trading on the basis of new publicly available information, which of the following statements is most accurate concerning the efficient market hypothesis?

a. The market is strong-form efficient

b. The market is semi-strong form efficient

c. The market is weak form efficient at best

d. The market is not efficient at any level

Locate a publicly traded company’s most recent annual 10-K filing. You can use the EDGAR electronic data gathering, analysis, and retrieval system with the SEC to acquire those financials.

You must post your initial response to the discussion board by Wednesday at 11:59 p.m. In your initial post, answer the following questions related to the company’s property, plant, and equipment:

Name the different types of assets the company lists in its balance sheet under property, plant, and equipment.

How much cash was used for the acquisition of property, plant, and equipment during the year? How does this compare with purchases in previous years?

Compute the fixed-asset turnover ratio for the fiscal year. What is the ratio intended to measure?

1. What are the advantages of stock repurchases versus paying dividends?

The biggest benefit of repurchases versus paying dividends, is that it reduces the number of shares outstanding for a company. This can improve per-share things like earnings per share and even return on equity. By improving these metrics they can often drive the share prices higher which is good news for the shareholders.  

2. What is the impact of a stock split on the value of a corporation? Why do companies do stock splits?

All publicly traded companies have a given number of shares that are outstanding. In the event of a stock split, those companies are making a decision to increase those number of shares outstanding. In theory, when a stock splits so too does the price. For example if a company had 15 million shares outstanding traded at $1 per share and they split 2:1 they would result in 30 million shares outstanding traded at $0.50 per share. These stock splits are typically found in companies that have seen their share prices increase to levels that are too high compared to their industries stock prices. Often times when a stock splits, the price can increase because it is viewed as more affordable to future investors. It also typically acts as a signal that the stock has been performing well prior to the split, which again can drive new investors to purchase stock.  

3. What is the difference between a stock dividend and a stock split?

Stock dividends are used to benefit the current standing shareholders by providing them additional shares based upon their current holdings. For example if a company were to issue a stock dividend of 0.05 per share, they would be providing current shareholders an additional .05 shares for each share they currently own. This is different from a split, as a stock split is also tied to the price of the stock itself. If you have 1 share that goes to 2 shares, the value of the share is halved in a split scenario.

The purpose of this calculation question is for you to compute the fair value of the financial liabilities of Hue Company.

Hue Company has only 1 financial liability. It is a non-callable publicly traded bond. Here are your facts to input into this question:

• Maturity value of the bond = $260,000,000
• Coupon Rate for the bond is 5.38% paid semi-annually.
• Bond matures on the last day of the firm’s financial year.
• Last Financial Year end – the yield to maturity was 4.80% based on periodic compounding (not EAR)
• Last Financial Year end – bond had exactly 18 years to maturity
• This Year Financial Year end – the yield to maturity demanded by the market is 4.30% (based on doubling the periodic rate)

Required: Compute the fair value of the bond to be reported on this year’s balance sheet. Round to the nearest dollar and do NOT include the dollar sign in your response.

The purpose of this calculation question is for you to compute the fair value of the financial liabilities of XYZ Company. XYZ Company has only 1 financial liability. It is a non-callable publicly traded bond. Here are your facts to input into this question: Maturity value of the bond = $260,000,000 Coupon Rate for the bond is 5.38% paid semi-annually. Bond matures on the last day of the firm’s financial year. Last Financial Year end – the yield to maturity was 4.80% based on periodic compounding (not EAR) Last Financial Year end – bond had exactly 18 years to maturity This Year Financial Year end – the yield to maturity demanded by the market is 4.30% (based on doubling the periodic rate) Required: Compute the fair value of the bond to be reported on this year’s balance sheet. Round to the nearest dollar and do NOT include the dollar sign in your response.