1. Valuation a. A firm has a cash flow of $4M one year from now, $6M two years from now, and is expected to be sold three years from now at $100M. If the discount rate is 10%, what is its value today? b. A firm has cash flow of $15M next year, and then the cash flow grows ever year forever at 5%. If the discount rate is 9%, what is the value of the firm today? c. List some valuation ratios based upon accounting information that you think might be useful in valuing a company, e.g., the price earnings ratio. 2. Portfollo return a. A portfolio has a weight of 0.30 invested in stock A, 0.55 invested in stock B and 0.15 invested in stock C. Stock A goes from $60 to $45 with a $1 year-end dividend, stock B goes from $35 to $40 with no dividend, and stock C goes from $45 to $60 with a $2 year-end dividend. What is the total return of the portfolio if dividends are paid at the end of the period? b. How do they compute the total return each month on the S&P 500? The Russell 1000? The Russell 2000? c. What is the ETF with the ticker SPY? How do ETFs differ from mutual funds? 3. You start with a $5 million dollar portfolio. The first year you earn a 22% capital gain and earn $300,000 income at year-end. You spend $250,000 and reinvest the rest. The second year your capital gain is -10%, but you earn $300,000 income again at year-end, but you spend $400,000. a. What Is the $ value of your portfollo at the end of the second year? b. What is the compound total annualized return on your portfolio over the two years, ignoring consumption?
1. Valuation a. A firm has a cash flow of $4M one year from now, $6M two years from now, and is expected to be sold three years from now at $100M. If the discount rate is 10%, what is its value today? b. A firm has cash flow of $15M next year, and then the cash flow grows ever year forever at 5%. If the discount rate is 9%, what is the value of the firm today? c. List some valuation ratios based upon accounting information that you think might be useful in valuing a company, e.g., the price earnings ratio. 2. Portfollo return a. A portfolio has a weight of 0.30 invested in stock A, 0.55 invested in stock B and 0.15 invested in stock C. Stock A goes from $60 to $45 with a $1 year-end dividend, stock B goes from $35 to $40 with no dividend, and stock C goes from $45 to $60 with a $2 year-end dividend. What is the total return of the portfolio if dividends are paid at the end of the period? b. How do they compute the total return each month on the S&P 500? The Russell 1000? The Russell 2000? c. What is the ETF with the ticker SPY? How do ETFs differ from mutual funds? 3. You start with a $5 million dollar portfolio. The first year you earn a 22% capital gain and earn $300,000 income at year-end. You spend $250,000 and reinvest the rest. The second year your capital gain is -10%, but you earn $300,000 income again at year-end, but you spend $400,000. a. What Is the $ value of your portfollo at the end of the second year? b. What is the compound total annualized return on your portfolio over the two years, ignoring consumption?
Chapter13: Other Financing Alternatives
Section: Chapter Questions
Problem 1bM
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Please answer the problem set in the attached image
Transcribed Image Text:1. Valuation
a. A firm has a cash flow of $4M one year from now, $6M two years from now, and is expected
to be sold three years from now at $100M. If the discount rate is 10%, what is its value
today?
b. A firm has cash flow of $15M next year, and then the cash flow grows ever year forever at
5%. If the discount rate is 9%, what is the value of the firm today?
c. List some valuation ratios based upon accounting information that you think might be useful
in valuing a company, e.g., the price earnings ratio.
2. Portfollo return
a. A portfolio has a weight of 0.30 invested in stock A, 0.55 invested in stock B and 0.15
invested in stock C. Stock A goes from $60 to $45 with a $1 year-end dividend, stock B goes
from $35 to $40 with no dividend, and stock C goes from $45 to $60 with a $2 year-end
dividend. What is the total return of the portfolio if dividends are paid at the end of the
period?
b. How do they compute the total return each month on the S&P 500? The Russell 1000? The
Russell 2000?
c. What is the ETF with the ticker SPY? How do ETFs differ from mutual funds?
3. You start with a $5 million dollar portfolio. The first year you earn a 22% capital gain and earn
$300,000 income at year-end. You spend $250,000 and reinvest the rest. The second year your
capital gain is -10%, but you earn $300,000 income again at year-end, but you spend $400,000.
a. What Is the $ value of your portfollo at the end of the second year?
b. What is the compound total annualized return on your portfolio over the two years, ignoring
consumption?
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