PROBLEMS-
1. Cummings has EAT, depreciation expense, capital expenses, debt and debt principal payments of $9m, $2.8m, $1.3m, $40m and $1.5m respectively. Between the first and the second years, it has current assets of $11m and $13.4m and current debts of $5m and $6.1m respectively. Its unlevered bheta, D/E and t are 3, 40/60 and .4 respectively. The t bond rate is 2% and the risk premium is 8% and its sales are $90m. Cummings plows about 30% of its profits back into its business. Derive the value of Cummings.
2. We know the following about Mansur. Total assets are $1000m, E is $700m, cash is $100m and the # of shares is 1m. We estimate that the market value of equity is 2 times the book value of it. Finally, a fire sale of the firm would bring 70% of the value to the co. Compute the book value, liquidation value, replacement value and enterprise value per share of Mansur.
3. We have the following information for the Pilana company. The stock pays a $10 dividend, and it will grow by 100% the first year, 30% the second year and 3% forever after that. The unlevered bheta is 1, D/E is 60/40 and the tax rate is .3. Additionally, we know the treasury bond rate is .08 and the ROR of the S&P has been 10%. Derive the stock price of Pilana.
4. We want to compute the EPS and growth rate of Ninni. It has 2 m shares outstanding and $80m of book value of equity. Ninni expects to sell $20m worth of sales and have EAT of $5m and keep 40% of its profit. Furthermore, it has $100m of assets. Its coe is .12 and its bheta is 1.2. Calculate Ninni's price.
5. We have the Washington firm on which we have the following information. Its bheta unlevered is 3, its D/E is 4/1, and its tax rate is .3. Additionally we know that the default free rate is 5% and the stock market has returned 11 % over a long period of time. Compute the levered bheta. Expound on what kind of firm Washington is.
6. We want to buy a 30 year, 5% bond, but we plan to sell it in 4 years. We estimate that the ytm at that time will be 7%. The market rates are 4% presently. What should we pay for the bond now? If this bond is a municipal one, what is the equivalent yield, if our tax rate is 40%? Use the market rate of now for the derivation.
7. We have the Goncalves par bond paying a coupon rate of 8% and having a maturity of 20 years. If the coupon rate of Goncalves were to alter to 4%, what would the new duration be? What is the meaning of duration? Under what circumstances would duration equal maturity?
8. We have the Oleynik bond which has a duration of 4, a ytm of 12% and a maturity of 25 years. The central bank is injecting huge liquidity, and there is no fear of inflation. If the yields alter by 100 basis points, what would the price change be? If the yields were to alter by 200 basis points, what would be the new change of the Oleynik bond?
9. We have a callable 25 year, 2% bond Cabal and associates selling at $1500. If the instrument is callable after 4 years at $1050, what will the yield to call and the yield to maturity be? What do we expect the rate of return to be for the investor of Cabal?
10. The P/E ratio for Lemanowicz and Associates is 10. We know that EAT, book value of equity, sales, total assets and number of shares of the firm are $10 m, $30m, $50 m, $100m and I million respectively. What is the EPS, ROE and BVPS? What is a reasonable prognosis of the price of Lemanowicz? Expound on advantages and disadvantages of EPS, ROE and P/E ratios.