Answers to Problems 4-20. The price of the stock would be determined using the zero growth model and dividing the $8 dividend by the required rate of return of 10% ($8 0.10). This results in a price of $80 per share. 4-25. To calculate the price of
Answers to problems in Chapters 5 and 6 5-7. The dollar return per share on the investment would be the sum of the $3 ($48 - $45) capital gain and the $2 dividend, which totals $5 per share. The percentage return per share equals 11.1% as determined
Chapter 10: Market Efficiency and Behavioral Finance Answers to questions 10-1. Informational efficiency refers to how quickly the markets incorporate new information into security prices. This can impact corporate finance and investment decisions if
Chapter 9: Cost of Capital and Project Risk
9-5. Note: because there is no debt, the percentage change in net income is the same as the percentage change in EBIT. Further, because the net profit margin is constant, the percentage change in sales is t
Chapter 8: Cash Flow and Capital Budgeting Answers to Problems 8-2. a. The terminal value is: [$2.5 million *(1 + 4%)] [15% - 4%] = $23.64 million. b. The total value of the cash flows is: [$1.2 million (1 + 15%)] + [$1.4 million (1 + 15%)2] + [$1
Chapter 7: Capital Budgeting Process and Techniques Answers to questions 7-1. a. Type I error means rejecting a good project. Payback could lead to Type 1 errors when it rejects a good project that has large cash flows after the payback period cutoff
Lecture 4
Answers to problems 21-1. assets-to-equity = total assets total equity, debt ratio = 1 1/(assets-to-equity ratio). This is the same manner in which the equity multiplier is related to the debt ratio.
m1 d g*
A E
A A m1 d S E
m1 d A E
Lecture 7
Answers to Problems 3-2. Present Value: PV = FVn x PV = $100 x (1.08)-6 PV = $100 x (.6302) PV = $63.02
1 1 r
n
or FVn x (PVFr%, n)
3-9.
Investment A: $2,750 x (1.06)15 = $6,590.54 Investment B: $900 x 1.095 = $1,000 x 1.094 = $1,200 x
Lecture 2
Answers to End of Chapter Questions 2-2. The Sarbanes-Oxley Act of 2002 (SOX) established the Public Company Accounting Oversight Board (PCAOB), which effectively gives the SEC authority to oversee the accounting profession's activities. Po