8. Velcraft Company has 20,000,000 shares of common stock authorized, but to date, has only 10,000,000 shares outstanding, each with a $1.00 par value. The company has $20,000,000 in additional paid-in capital and retained earnings are $90,000,000. What is Velcraft's current book value per share?
9. (5 points) You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every year. If your nominal annual required rate of return is 10 percent with, how much should you be willing to pay for this bond?
11. U3’s Corporation stock has a beta of 1.8. The market risk premium is 8%, and the risk-free rate is 3%. U3 has a target debt/equity ratio of 50%. Its cost of debt is 10%, before taxes. If the tax rate is 35%, what is the WACC?
12. Your portfolio consists of Microsoft and Google. On September 15, you fully invested your $1,000 on these two stocks with 50% of your money going into Microsoft (purchase price = $25 per share) and Google was purchased at $500 per share. On November 8, you sold your Microsoft at $29 a share and Google at $485 a share. Assume there is no cost to buy stocks but there is a $20 total commission charge to sell a stock up to 2500 shares. Compute this portfolio’s rate of return for the period and annualize the return. Why is it necessary to compare your portfolio’s performance against a certain index?
13. Google had a share price of $404.22 at the close of trading day on December 7, 2005. Its Trailing P/E ratio is 89.55 and its forward P/E ratio is 47.39. Also there are 295.55 million shares outstanding. What is Google’s market capitalization (cap) on that day?
14. Explain the capital asset pricing model (CAPM). Be sure to discuss beta, systematic risk and non-systematic risk, risk diversification, individual asset risk premium, market risk premium, market portfolio, and the security market line.
This question was asked on Dec 14, 2010 and answered on Dec 15, 2010.
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