Assignment 5-4 Worksheet

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Assignment 5.4 Exercises Problem 1: Calculating Holding Period Return Information about three securities is listed below: Security End of Year Price Stock A $106.35 $112.40 $1.85 Stock B $1.65 $1.85 $0.00 Bond X $1,052.00 $1,028.00 $47.00 Use the information provided above to answer the following questions. a) What is the Holding Period Return for each of these securities? Use the Template Provided Below to Create Your Solution - Pay close attention Input / Output area: Security Starting Price ($) Ending Price ($) Income ($) Stock A $106.35 $112.40 $1.85 Stock B $1.65 $1.85 $0.00 Bond X $1,052.00 $1,028.00 $47.00 b) Intepretation: How does repurchasing shares affect the calculation for Ho Beginning of Year Price Interest or Dividend Paid During Year b) Suppose that during the year, the executives of Stock A decided to spend spent $1 calculation of the Holding Period Return? Without a share repurchase, an investor would calculate holding period return as: n = (# of days / 365) * (Ending Share Price - Initial Share Price). This formula assu investor wanted to reflect his/her repurchase in this formula, it would need to be a be able to calculate holding period return. In most cases, however, you would exp
5 Points to the formulas and formatting of the inputs, and be sure to ans Change in Price Capital Gain (loss) + Dividend Yield $ 6.05 5.69% 1.74% $ 0.20 12.12% 0.00% $ (24.00) -2.28% 4.47% olding Period Return? 185 million repurchasing the company's shares. How, if at all, does th umes that the investor purchased the shares at the beginning of the q added to the above calculation. As a result, one can see that if an inve pect an investor who purchased at $25 and held for a full year to sell a
swer both parts of the question. = Holding Period Return 7.43% 12.12% 2.19% his information affect the quarter and sold at the end of that same quarter. If an estor purchases shares but never sells them, they would not at $26.
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Assignment 5.4 Exercises Problem 2: Calculating Holding Period Return Information about three securities is listed below: Security End of Year Price Preferred A $10.00 $10.00 $0.75 Common B $38.00 $36.50 $3.35 Bond C $985.00 $1,035.00 $78.00 Use the information provided above to answer the following questions for EACH secur a) What is the Capital Gain (loss) in dollar terms? What is the Capital Gain Yield (%)? b) What is the Dividend Yield (%)? c) What is the total Holding Period Return (%)? Create your Original Solution Below - Be sure to show all calculations and clearl Security Starting Price ($) Ending Price ($) Income ($) Preferred A $10.00 $10.00 $0.75 Common B $38.00 $36.50 $3.35 Bond C $985.00 $1,035.00 $78.00 Beginning of Year Price Interest or Dividend Paid During Year
5 Points rity. ly indicate answers. Change in Price Capital Gain (loss) + Income Yield $ - 0.00% 7.50% $ (1.50) -3.95% 8.82% $ 50.00 5.08% 7.92%
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= Holding Period Return 7.50% 4.87% 12.99%
This is the Student Template, provided in the assignment instructions October 2019
Assignment 5.4 Exercises Problem 3: Calculating Return Components 5 Points a) What was the dividend yield, in percentage terms? b) What was the capital gain from price appreciation on the stock, in percentage term c) What was the total return in dollars? What was the total return, in percentage term Create your Original Solution Below - Be sure to show all calculations and clear Input area: Purchase Price ($) $ 50.00 Selling Price ($) $ 55.00 Dividends Received ($) $ 7.00 Output area: a) Current Yield 14.0% b) Capital Gain ($) $ 5.00 Capital Gain (%) 10.0% c) Total Return ($) $ 12.00 Total Return (%) 24.0% An investor purchases one share of stock for $50. After one year, they sell the share for $55. During the year, they receive $7 in dividends.
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ms? ms? rly indicate answers.
This is the Student Template, provided in the assignment instructions October 2019
Assignment 5.4 Exercises Problem 4: Calculating Dollar Returns with Exchange Rates 5 Points a) What was the purchase price in US Dollars? c) What was the bond's selling price, in US Dollars? d) What was the investor's total earnings during the year, in US Dollars? Use the Template Provided Below to Create Your Solution - Pay close attention Input area: Purchase Price (euros) € 1,023.00 Par Value (euros) € 1,000.00 Exchange Rate at Purchase (USD/EUR) 1.24 Coupon Rate (%) 8.0% Selling Price (euros) € 918.00 Exchange Rate at Sale (USD/EUR) 1.10 Output area: a) Purchase Price (dollars) $ 825.00 e) Intepre b) Coupon Interest Earned (dollars) $ 72.73 Capital Loss (dollars) $ (95.45) Gain from Exchange Rate (dollars) 105 c) Sale Price (dollars) $ 834.55 d) Total Earnings (dollars) $ 82.27 Total Earnings (%) 9.97% An American investor purchases a single Eurobond from their personal financial advis their American dollars to make the purchase. The bond sells for 1023 euros, and ha exchange rate is $1 US Dollar per 1.24 Euros. The coupon rate on the bond is 8%, p sells the bond for 918 euros. The exchange rate at the time of sale has fallen to $1 U b) How much money did the investor earn from coupon interest, in dollars? How muc decline in the bond's price? How much did they gain from the change in the exchang e) The bond fell in value dramatically during the year. Its price fell by over 10% in Eu money, in US Dollars, than they bought it for, and earned a substantial return. How is Although levels tha average r
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to the formulas and formatting of the inputs, and be sure to answer all parts of the ques etation: How is it possible to earn a substantial return even though the bond's price fell sor. The bond is denominated in Euros, but the investor uses as a par value of 1000 euros. At the time of purchase, the paid annually. One year later, the coupon is paid and the investor US Dollar per 1.10 Euros. ch did they lose due to the ge rate? uros! Nevertheless, the investor sold the bond for more s this possible? Explain. implied volatility rose sharply as a result of an increase in risk aversion when the crisis began, at were significantly lower than what they were at prior to the crisis. The investor had not earne return through any form of investment skill or foresight.
stion. dramatically? , it still fell to ed an above-
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Assignment 5.4 Exercises Problem 5: Determining Issue Costs a) At what price will the shares be sold to the public? b) What price per share will the company actually receive? c) How many shares must the company sell to raise the desired funds? d) How much money will the investment banking syndicate earn on the s e) What is the total cost of raising the funding, due to both investment ba Use the Template Provided Below to Create Your Solution - Pay clos Input area: Desired Funds ($) $ 275,000,000 Current Stock Price ($ per share) $ 38.00 Underpricing (%) 9.0% Investment Banker's Spread (%) 8.0% Output area: a) Price shares will be sold at: $ 34.58 b) Net price company will receive: $ 31.81 c) Shares that must be issued: 8,644,102 d) Investment bank earnings: $ 23,913,043 Cost of underpricing: 29562828.475872 e) Total cost of raising funds: $ 53,475,872 Cost as percentage of funds raised: 19.45% A growing company wants to raise $275 million in a new stock issue. Its underpricing to attract new investors. They will also charge an 8 percen public stock price, while the spread represents a cut of the issue price. T
5 Points sale? ank costs and underpricing? se attention to the formulas and formatting of the inputs. s investment banker indicates the sale of stock will require 9 percent nt spread. Underpricing is expressed as a percentage of the current The company's current stock price is $38 per share.
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Assignment 5.4 Exercises Problem 6: Determining Issue Costs a) At what price will the shares be sold to the public? b) What price per share will the company actually receive? c) How many shares must the company sell to raise the desired funds? d) How much money will the investment banking syndicate earn on the s e) What is the total cost of raising the funding, including all costs? Create your Original Solution Below - Be sure to show all calculatio Input area: Desired Funds ($) $ 680,000,000 Current Stock Price ($ per share) $ 53.00 New Issue Price ($ per share) $ 50.35 Investment Banker's Spread (%) 4.0% Adminstrative and Legal Costs ($) $ 1,850,000 Output area: a) Net price company will receive: $ 48.34 b) Shares that must be issued: 14,068,189 c) Investment bank earnings: $ 28,333,333 d) Cost of underpricing: $ 37,280,702 Total cost of raising funds: $ 67,464,035 Cost as percentage of funds raised: 9.92% A large, mature company wants to raise $680 million in a new stock issu percent underpricing to attract new investors. They will also charge a 4 legal and adminstrative fees to raise these funds. The company's curren
10 Points sale? ons and clearly indicate answers. ue. Its lead investment banker indicates the sale of stock will require 5 percent spread. The company expects they will incur $1,850,000 in nt stock price is $53 per share.
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Assignment 5.4 Exercises Problem 7: Impact of Financial Leverage Use the Template Provided Below to Create Your Solution - Pa Input area: Expected EBIT After Project ($ millions) Funding Needed ($ millions) Annual Interest on Existing Debt ($ millions) Interest Rate on New Debt (%) Sinking Fund Payments on Existing Debt ($ millions) Sinking Fund Payment on New Debt ($ millions) Common Stock Price ($ per share) Price of New Issue of Stock ($ per share) Common Shares Outstanding (millions) Effective Tax Rate (%) Output area: a) Equity Funding Times-Interest-Earned Ratio Times-Burden-Covered Ratio New Shares to Issue (millions) Earnings per Share Behemoth Enterprises needs to raise $10 Billion to fund a major n executives are debating whether to raise the money by issuing deb through, the company's Earnings Before Interest and Taxes (EBIT will have to pay interest of 5% on this new debt, along with $200 m company already pays in interest on its existing debt, plus $2.3 Bil of stock, their investment banker predicts they will be able to issue outstanding at $11.50 per share. The company's effective tax rate a) If the company raises the funding with equity, what will be its tim will be its earnings per share? b) If the company raises the funding with debt, what will be its time be its earnings per share?
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b) Debt Funding Interest Payments on New Debt ($ millions) Times-Interest-Earned Ratio Times-Burden-Covered Ratio Earnings per Share
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5 Points ay close attention to the formulas and formatting of the inputs. $ 9,700,000.00 $ 10,000,000.00 $ 2,750,000.00 5.0% $ 2,300,000.00 $ 200,000,000.00 $ 11.50 $ 10.00 8,700,000 21.0% 3.53 1.71 1000000.00 $ 0.57 new project designed to reinvigorate the giant company's growth. The company's top bt or by issuing new shares of stock. Their team of analysts predict that if the project goes T) will increase to $9.7 Billion. However, if the company uses debt to fund the project, they million in annual sinking fund payments. This would be on top of the $2.75 Billion the llion in annual sinking fund payments. If the company instead chooses to issue new shares e additional shares at $10 per share. The company currently has 8.7 Billion shares e is 21%. mes-interested earned ratio? What will be its times-burden-covered ratio? What es-interested earned ratio? What will be its times-burden-covered ratio? What will
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$ 500,000.00 2.98 0.04 $ 0.59
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Assignment 5.4 Exercises Problem 8: Impact of Financial Leverage a) If the company raises the funding with equity, what will be its times-interested earn b) If the company raises the funding with debt, what will be its times-interested earned c) Which option would you suggest Doug pursue? Why? Create your Original Solution Below - Be sure to show all calculations and clear Input area: Expected EBIT After Project $ 350,000.00 Funding Needed $ 200,000.00 Annual Interest on Existing Debt $ 10,000.00 Interest Rate on New Debt (%) 8.0% Payments on Existing Debt $ 3,000.00 Payment on New Debt $ 7,500.00 Common Stock Price ($ per share) $ 15.00 Price of New Issue of Stock ($ per share) $ 10.00 Common Shares Outstanding 80,000 Effective Tax Rate (%) 21.0% Output area: a) Equity Funding Pipsqueak Co. has an exciting opportunity to buy out its main local competitor for $20 for the acquisition, he is considering taking out a loan with his local bank, backed by h only has a small amount of existing debt, necessitating $10,000 in annual interest pay payment, rather than cash. In this case, Doug would issue shares of stock at $10 per worth about $15 per share. Doug owns all 80,000 existing shares. The company's ta
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Times-Interest-Earned Ratio 35.00 Times-Burden-Covered Ratio 25.37 New Shares to Issue 20000.00 Earnings per Share $ 2.69 b) Debt Funding Interest Payments on New Debt $ 16,000.00 Times-Interest-Earned Ratio 13.46 Times-Burden-Covered Ratio 8.91 Earnings per Share $ 3.20
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ned d ra rly 00,0 his yme r sh ax r
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10 Points ratio? What will be its times-burden-covered ratio? What will be its earnings per share? atio? What will be its times-burden-covered ratio? What will be its earnings per share? indicate answers. 000. Doug Kindle, owner/operator of the business, calculates the combined EBIT of the merged c home mortgage, at an interest rate of 8%. In addition, $7500 of principal payments would be due ents and $3000 in principal payments. However, the owner of Pipsquek's competitor has offered hare, and the competitor's current owner would become a part-owner in Pipsqueak Co. Doug's a rate is 21%.
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In order to overcome the company's aggressive competitors in the industry, a company needs its own funding source, but it's difficult for a company to find venture capitalists willing to invest in a risky start-up. The owners of the company are considering two options: raising money through debt financing or equity financing. Equity financing will offer greater returns on investment because it is worth more than debt financing. However, equity financing will also mean the company has to give up a large portion of ownership. The company's unit sales have been growing in recent years and it is expected to continue growing for years to come. In the past, the company has had unit sales growth of 10% a year, but management thinks this could grow to 15%. If that happens, however, profit margins will be very thin since the company needs to pay interest and dividends on debt. Therefore if the owners of this start-up are unable to find investors willing to lend them money at a low interest rate, it will be necessary for them to take on more debt in order for their business plan to work.With a negative net worth, the owners of the start-up must sell or give away part of their business in order to pay their creditors. How much should they retain? By raising $1,500,000 through debt financing, the owners of this start-up will be required to pay an annual interest charge of $90,000 for each year that is outstanding. This means a total annual interest expense of $180,000.
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companies would be $350,000. To pay e each year. Fortunately, the company d to instead take stock as a form of accountant tells him his current stock is
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Acme Chemical, Inc. is a major manufacturer of chemical products for the agricultural ndustry, including pesticides, herbicides and other compounds. Due to a number of law suits elated to toxic wastes, Acme Chemical has recently experienced a market re-evaluation of its common stock. The firm also has a bond issue outstanding with 10 years to maturity and an annual coupon rate of 5 percent, with interest paid semi annually. The required nominal market annual interest rate on this bond has now risen to 10 percent due to the high risk level associated vith this firm. The bonds have a par or face value of $1,000. 1. Label each of the variables that you would use to determine the value of this bond in the market today: N (time periods until maturity) PMT (periodic interest payment) I per (periodic market interest rate) EV (future value to be received when the bond matures) = 2. Based on the variables that you have identified in Question #1, what is the market value. today (the present…
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Question content area top Part 1 Bond valuation—Semiannual interest   Calculate the value of each of the bonds shown in the following​ table, all of which pay interest semiannually.  ​(Click on the icon here    in order to copy the contents of the data table below into a​ spreadsheet.) Bond Par Value Coupon interest rate Years to maturity Required stated annual return A ​$1,000   9 ​% 8   9 ​% B 1,000   13   15   12   C 100   15   6   16   Question content area bottom Part 1 The value of bond A is $______ (Round to the nearest​ cent.)
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Solve this following requirements on these accounting question
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Preview ●●● E View Edit File V Go Tools 6. Problem 5-12 (Bond Yields and Rates of Return) Window Help Screen Shot 2023-03-06 at 8.44.56 PM H Problem Walk-Through a. What is the bond's yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % 2 b. What is the bond's current yield? Do not round intermediate calculations. Round your answer to two decimal places. % eBook Bond Yields and Rates of Return A 25-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,100. The bond sells for $950. (Assume that the bond has just been issued.) d. What is the band's yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % HARD c. What is the bond's capital gain or loss yield? Capital loss yield, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. % $ Save & Continue Continue without saving Q 0…
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Publisher:Cengage Learning
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Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
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