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Bob and Doug McKenzie are senior vice presidents of Elsinore Brewery. They are co-directors of the company’s pension fund management division, with Bob having responsibility for fixedincome securities (primarily bonds) and Doug being responsible for equity investments. A major new client, the Yakima Valley Brewery, has requested that Elsinore Brewery present an investment seminar to the executive officers of Yakima Valley brewery; and Bob and Doug, who will make the actual presentation, have asked you to help them.
To illustrate the common stock valuation process, Bob and Doug have asked you to analyze the Grandview Brewery Supply Inc., a supply company that supplies brewery equipment, yeast, and hops to breweries around the world. You are asked to answer the following questions:
1. Briefly describe the legal rights and privileges of common stockholders. 2. Answer the following: a. Write a formula that can be used to value any stock, regardless of its dividend pattern. b. What is a constant growth stock? How are constant growth stocks valued? c. What are the implications if a company forecasts a constant g that exceeds its rs? Will many stocks have expected g > rs in the short run (i.e. for the next few years)?
Martin Corporation had net operating income of $40,000. - How much tax must the corporation pay?- What is the average tax rate?- What is the marginal tax rate?
You are considering the purchase of a share of Alfa Growth, Inc. common stock. You expect to sell it at the end of one year for $55.35 per share. You will also receive a dividend of $2.30 per share at the end of the next year. If your required return..
Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 12 percent, has a YTM of 10 percent, and has 16 years to maturity. Bond Y is a discount bond making semiannual payments. If interest rates remain unchanged, what do y..
Construct an amortization schedule for the first three months and the final three months of payments for a 30-year, 7 percent mortgage in the amount of $90,000. What percentage of the third payment is principal? What percentage of the final payment i..
Champoux Hair Factory, Inc., has earnings before interest and taxes of $200,000.- Can Champoux pay the proposed dividend?- What is the maximum dividend per share that may be paid?
PBJ Corporation issued bonds on January 1, 2006. The bonds had a coupon rate of 5.5% with interest paid semi annually. The face value of the bonds is 1,000$ and the bonds mature on January 1, 2021. What is the yield to maturity for an PBJ Corporation..
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,340,000; the new one will cost, $1,600,000. The new machine will be depreciated straight-line to zero over its five-year life. The tax rate is 40 percent, ..
Super Tennis Co is in the business of designing and manufacturing running shoes for long distance runners. They are considering a $500 million upgrade to their production line for the iPhone/iPad/ iWatch connected shoe that has Bluetooth connectivity..
Sarah purchased 100 shares of General Electric stock at a price of $61.66 three months ago. What is Sarah’s holding period return.
Waterway Brothers has the following data for the year ending 12/31/07: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Tot..
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $80.00 a share. The before-tax cost of debt is 7.50%, an..
Harrimon Industries bonds have 4 years left to maturity. What is the yield to maturity at a current market price of $881?
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