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Finance Problem Set 2 Questions




Question;1. Your broker recommends that you purchase Good Mills at $30. The stock pays a $3.20 annual dividend, which (like it?s per share earnings) is expected to grow annually at 8 percent. If you want to earn 15 percent on your funds, is this stock a good buy?2. Ajax common stock has a 6% expected constant dividend and the last dividend paid was $2 per share. If you require a 12% return on stock of this risk level what is the maximum price you should pay?3. If you purchase Large Oil, Inc. for $36 and the firm pays a $3.00 annual dividend which you expect to grow at 7.5 percent, what is the implied annual rate of return on your investment?4. You are considering the purchase of a common stock whose historical beta is.5. What rate of return should you require from this stock if the current risk free rate of return is 4% and the expected return on an average investment in the market is 11%?5. Two stocks each pay a $1 dividend that is growing annually at 8 percent. Stock A's beta = 1.3, stock B's beta = 0.8.a. Which stock is more volatile? b. If Treasury bills yield 9 percent and you expect the market to rise by 13 percent, what is your risk-adjusted required return for each stock? c. Using the dividend-growth model, what is the maximum price you would be willing to pay for each stock?6.For each of the following ratios indicate whether the firm?s ratios are good or poor as compared to industry averages.AnswerInventory Turnover Company 5 Industry 7Receivables Turnover Company 20 Industry 33Times Interest Earned Company 3 Industry 7Quick Ratio Company 1 Industry 3Return on Assets Company 6.1% Industry 8.5%


Paper#48351 | Written in 18-Jul-2015

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