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Question;Problem 5 (PAge192);Assume D1 = $1.60, Ke =;13 percent, g = 8 percent, the constant growth dividend valuation model.;Problem 10 (Page 193);Leland Manufacturing Company;anticipates a no constant growth pattern for dividends. Dividends at the end of;year 1 are $4.00 per share and are expected to grow by 20 percent per year;until the end of year 4 (that?s three years of growth). After year 4, dividends;are expected to grow at 5 percent as far as the company can see into the;future. All dividends are to be discounted back to present at a 13 percent rate;(Ke = 13 percent).;a.;Project dividends for years 1 through 4 (the first year is already given).;Round all values that you compute to two places to the right of the;decimal point throughout this problem.b. Find;the present value of the dividends in part a.c.;Project the dividend for the fifth year (D5).d. find the present value of all future;dividends, beginning with the fifth year?s dividend. The present value you;find will be at the end of the fourth year. Use as follows: P4;= D5/(Ke? g).e.;Discount back the value found in part d for four years at 13;percent.f. Add;together the values from parts b and e to determine the;present value of the stock.;Problem 14 (Page 194);Mr. Phillips of Southwest Investment Bankers is evaluating the P/E ratio of;Madison Electronics Conveyors (MEC). The firm?s P/E is currently 17. With;earning per share of $2, the stock price is $34.;The average P/E ratio in the electronic conveyor industry is presently 16.;However, MEC has an anticipated growth rate of 18 percent versus an industry;average of 12 percent, so 2 will be added to the industry P/E by Mr. Phillips.;Also, the operating risk associated with MEC is less than that for the industry;because of its long-term contract with American Airlines. For this reason, Mr.;Phillips will add a factor of 1.5 to the industry P/E ratio.;The debt-to-total-assets ratio is not as encouraging. It is 50 percent;while the industry ratio is 40 percent. In doing his evaluation, Mr. Phillips;decides to subtract a factor of 0.5 from the industry P/E ratio. Other ratios;including dividend payout, appear to be in line with the industry, so Mr.;Phillips will make no further adjustment along these lines.;However, he is somewhat distressed by the fact that the firm only spent 3;percent of sales on research and development last year, when the industry norm;is 7 percent. For this reason he will subtract a factor of 1.5 from the;industry P/E ratio.;Despite the relatively low research budget, Mr. Sanders observes that the;firm has just hired two of the top executives from a competitor in the;industry. He decides to add a factor of 1 to the industry P/E ratio because of;this.;a.;Determine the P/E ratio for MEC based on Mr. Phillips?s analysis.b.;Multiply this times earnings per share, and comment on whether you think;the stock might possibly be under- or overvalued in the marketplace at its;current P/E and price.Problem 5 (Page 228);A firm has assets of $1,800,000 and turns;over its assets 2.5 times per year. Return on assets is 20 percent. What is its;profit margin (return on sales)?;Problem 15 (Page 230);The;Multi-Corporation has three different operating divisions. Financial;information for each is as follows;Clothing Appliances Sporting;Goods;Sales $3,000;Operating Income;Net Income (a/t);Assests;a.;Which division provides the highest operating margin?b.;Which division provides the lowest after-tax profit margin?c.;Which division has the lowest after-tax return on assets?d.;Compute net income (after-tax) to sales for the entire corporation.e.;Compute net income (after-tax) to assets for the entire corporation.f. The;vice president of finance suggests the assets in the Appliances division;be sold off for $10 million and redeployed in Sporting Goods. The new $10;million in Sporting Goods will produce the same after-tax return on assets;as the current $8 million in that division. Recompute net income to total;assets for the entire corporation assuming the above suggested change.g.;Explain why Sporting Goods, which has a lower return on sales than;Appliances, has such a positive effect on return on assets

 

Paper#45469 | Written in 18-Jul-2015

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