1) Asssume the following facts regarding this company:
Current sales: $420 million
Net Income: 38 million
Dividend Payout ratio: 40%
ROE: 14 %
Shares outsanding 10 million
What was this years dividend?
Assuming the company matains it payout ratio, what is the best projection for next year's dividend?
(Hint: you should assume that any cash paid out as a dividend is invested by the company and earns the company's ROE)
2.) ABC corp manufactures equipment for the military as well as construction companies. Assume its cost of equity is 12 percent. It has been paying a dividend of $4 per year but has recently announced its intention to use its substantial cash flow to increase its annual payout by 2 percent. Its stock is trading at around 40.00 per share.
How much of the share price is attributable to its $ 4 historic dividend?
How much of the share price is attributable to its announced plan to increase its dividend by 2% each year?
(hint this is a simple application of the basis dividend test-once you solve first part second part is easy)
3) Next years' after tax operating income of the company will be $300. Assume that the growth rate will be 5 percent and the ROIC 15 percent. The company's WACC is 13 percent. What is the value of the company?
A.1,166
B.2,222
C.2,500
D.2,750
4) Using the following information and treasury stock approach to valuing options, please determine the value of one share of stock in this corporation:
Projected year 1 FCFF-85 million
Assumed perpetual growth in FCFF-2%
WACC-9%
Cash invested in us treasury bills-110 million
Shares outstdaning-50 million
Options outstanding at $20 strike: 7 million
Debt outstanding: 185 million
One share of stock in the company is worth approximately?
5) ABC company currently ahs outstanding 1.5 million shares trading at $22 per share. It also has $30 mmillion face amount of bonds yielding 6.2 percent and trading at 95% par. Its cost of equity is 12 percent. The corporate tax is 34%.
What is the value of the firms equity?
What is the value of the firms debt?
What is the firm's weighted average cost of capital (WACC)?
(Hint: simple application of WACC formula.)
6) Mike started to build a portfolio of assets. Currently his porfotolo just includes three assets.
|
|
Asset 1
|
Asset 2
|
Asset 3
|
|
Expected Return
|
12 %
|
9 %
|
5%
|
|
% of portfolio
|
40 %
|
30%
|
30%
|
|
Probabilities
|
Return
|
xP(X=x)
|
|
40%
|
12%
|
0.048
|
|
30%
|
9%
|
0.027
|
|
30%
|
5%
|
0.015
|
|
Sums
|
1
|
0.09
|
|
|
|
|
|
m
|
9.00%
|
|
What is the expected return from Mike's portfolio? ________9__________________%
In an "efficient market" which asset is most likely to have the highest standard deviation?
What does that mean?
7) ABC has invested capital (book value) of 700 million. The PV of the firm's future free cash flow form operations is 400 million. It has cash holdings of 15 million. The firm has outstanding debt with a market value of 165 million. If there are 2 million shares outstanding, what is the estimated value of each share of stock? (Hint: don't get distracted by the erroneous facts.)
8) Inorder to settle some litigation with a supplier to your business you agree that the supplier will make the following payments to you: after one year $10,000 and one year later a second payment of $7,5000. Assume the appropriate discount rate is 150bps over the 2 year treasury, which is now trading at a yield of 3.5 percent. What is the present value of the settlement?
9) Three years ago you purchased a newly issued $100 ten year bond of a company that paid interest of 6% per annum. You paid par. The credit of the company has remained stable. You decide you want to sell the bond to use the cash for something else. When you check to see that the company is currently offering a new seven-year bond at a rate of only 4% per year.
What is the value of your bond?
10) The lottery is advertising that the value of the lottery is $250 million. The lottery offcials are saying that the winner can choose to receive $10 million each year for 25 years or a lump sum payment upfront. If the discount rate to be used is 7%, what is the amount of the upfront payment option?