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##### Finance Eight Problems Assignment Solution

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Question;1. [20]Here are returns:Stock-A MarketYr-1 14% 12%Yr-2 19 10Yr-3 -16 -12Yr-4 3 1Yr-5 20 15a. Compute the beta for A.b. Compute the required rate of return for A.c. Suppose stock A?s return is 23%, is the stock fairly valued?2. [14]Six-Sixty-One Inc. has an optimal capital structure as follows:Debt \$ 45 millionCommon Equity \$ 100 millionYou can sell 30 year, \$ 1000 face value, 6% coupon bonds at 90% of par value.The next dividend will be \$ 1.50, and shares trade at \$ 50. The firm?s growth rate is 10%. The tax rate is 30%.a. Compute the WACC.b. Compute the WACC if you think a capital structure of 40% debt and the rest equity is more optimal.c. In 140 characters or less [TYPED]: why do you compute the cost of capital?3. [18]Firms A {unlevered} & B sell Hot Dogs made from rattlesnake. Firm B?s capital structure is different ? it has \$ 10 million, 5% coupon bonds.EBIT for the firms is \$ 2 million. Cost of equity for A is 10%.a. In a M&M world ? estimate the value for A & B.b. Compute what the shareholders require as a return for A & B.4. [8]Use numbers and show me how a stock split affects the balance sheet of a firm.5. [10]Your firm has 25 million shares outstanding and they trade at \$ 30. Net Income this year will be \$ 3 million. You have \$ 15 million to use and you plan to buy-back shares.a. What is the EPS before and after the repurchase?b. How many shares trade in the market after the buy back?6. [18]MBA Inc.Market Value of Assets \$ 10 millionFace value of pure discount bond \$ 4 millionDebt Maturity 3 yearsAsset return? 60%Rf 5%Compute market value of debt and equity. Use Table 17.3. DO NOT INTERPOLATE!!!Show ALL work.7. [10]DRAW a payoff diagram: You are an executive and the Board allots you an option to buy 1000 shares at \$ 15. Shares trade at \$ 10 now.8. [8]How does a Dutch auction work? Not more than 4 short sentences.Why does Underpricing exist?

Paper#50030 | Written in 18-Jul-2015

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