1. Suppose Big D, Inc. just paid a dividend of $.50. It is expected to increase its dividend by
2% per year. If the market requires a return of 15% on assets of this risk, how much
should the stock be selling for?
P0 = .50(1+.02) / (.15 - .02)
CH7 HW: Amber Henson 5/24/2017
1. The Whirlwind Co. just paid an annual dividend of $3 a share. The firm expects to pay
dividends forever and to increase the dividend by 5 percent annually. What is the
current value of this stock if the required return is
If the risk-free rate decreases due to a shift in government policy, the
required return goes up. False
Assuming that economic conditions remain stable, any management
action that would cause curr
War, inflation, and the condition of the foreign markets are all examples
of Nondiversifiable risk
Unsystematic Risk _. Can be eliminated through
Risk that affects all
1. Yield to maturity on a bond with price
equal to its par value will Always be
equal to the coupon rate
2. If a bonds required return always
equals its coupon interest rate, the
bonds value will remain at par until
it matures. TRUE
3. Yield to maturity (
Select a public company, such as IBM or Apple and review their latest 10K filing.
Answer the following questions. Use a combination of Word and Excel to complete your project.
1) What is the nature of your companys business? How do they make money? 2) How
10 out of 10 points
What is the net present value of a project with the following cash flows if the discount
rate is 14 percent?
1. The Green Balloon just paid its first annual dividend of $0.12 a share. The firm plans to
increase the dividend by 3.5 percent per year indefinitely. What is the firm's cost of equity
if the current stock price is $6.50 a share?
1. Blue Lagoon stock is expected to produce the following returns given the various states
of the economy. What is the expected return on this stock?
STATE OF ECONOMY
RATE OF RETURN
3. Donut Delite has total assets of $31,300, long-term debt of $8,600, net xed assets of $19,300,
and omers' equity of$21,100. mat is the 1Iralue of the net working capital?
4. The Good Life Store has sales of $19,600. The cost of goods sold is $4
3. Use the following tax table to answer this question:
A conupan,r has taxable incorne of $205,100. How much does. it owe in taxes?
QCBADOw K 0.29% :-
e I 019qu
9. In the above question, what were the lms marginal and average tax rates?
The Strategic Importance of Location
o Location and Costs
Factors That Affect Location Decisions
o Labor Productivity
o Exchange Rates and Currency Risk
o Political Risk, Values, and Culture
o Proximity to Markets
o Proximity to
1. A company purchases a new 51D million building, nanced half with cash and half with a
bank loan. How would this transaction affect the company's balance sheet? Circle the answer.
a. Net plant and equipment rises $l million; cash falls $10 million; bank
10 out of 10 points
The Pancake House pays a constant annual dividend of $1.25 per share. How much are
you willing to pay for one share if you require a 15 percent rate of return?
10 out of 10 points
A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of
$70 every year. What is the coupon rate?
Introduction to Financial Management
Key Concepts and Skills
Know the basic types of financial
management decisions and the role of the
Know the financial implications of the
different forms of business orga
1. You are looking at a new project and you have estimated the following cash flows:
Year 0: CF = -165,000
Year 1: CF = 63,120
Year 2: CF = 70,800
Year 3: CF = 91,080
Your required return for assets of this risk is 12%. What is the NPV of
1. Prepare an amortization table (the first two months only) for a fixed-rate mortgage loan
with the following info:
APR=6% with monthly compounding
30 year loan
100,000 PV, 0.5 I/Y, 360 N, 0 FV, CPT PMT = $599
Cost of Capital
In project valuation methods like NPV and IRR, we have seen that firms need to
beat the cost of capital to make money. So they need to choose positive NPV
projects (where they are earning more than their cost of finding money, which is
The Balance Sheet
The balance sheet is a snapshot of the
firms assets and liabilities at a given
point in time
Assets are listed in order of decreasing
Ease of conversion to cash without
significant loss of value
Balance Sheet Identi