John wants to invest in shares and is trying to decide between two companies (Company A and Company B) in the same industry. After doing his research he notes the following about the two companies: Measure Company A Company B Share Price $10 $15 Earnings Per Share $1 $1 Dividend $0.50 $1 PE Ratio 10 15 Dividend Yield 5% 7% Having critically examined the five measures, John decided to purchase 1.5m shares in Company B. At the time when John purchased the shares, the value of the equity shares was $3m and the par value was $0.40. Required: a. Explain how each of the measures identified by John could help him in deciding on which company’s shares to buy. b. How did the stock market help John to purchase the shares in Company B c. Calculate John’s shareholding in Company B and the cost on his investment? d.. What are the benefits John obtains by being a shareholder in Company B?

John wants to invest in shares and is trying to decide between two companies (Company A and Company B) in the same industry. After doing his research he notes the following about the two companies: Measure Company A Company B Share Price $10 $15 Earnings Per Share $1 $1 Dividend $0.50 $1 PE Ratio 10 15 Dividend Yield 5% 7% Having critically examined the five measures, John decided to purchase 1.5m shares in Company B. At the time when John purchased the shares, the value of the equity shares was $3m and the par value was $0.40. Required: a. Explain how each of the measures identified by John could help him in deciding on which company’s shares to buy. b. How did the stock market help John to purchase the shares in Company B c. Calculate John’s shareholding in Company B and the cost on his investment? d.. What are the benefits John obtains by being a shareholder in Company B?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

ChapterC2: Spatial Technology, Inc.

Section: Chapter Questions

Problem kA

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Solve the following problem with complete solution.1. List five large publicly held companies that you know or whose products and services you enjoy. Then use the web to find the most recent closing stock price. Ignoring commissions, estimate the cost if you purchased ten shares of each of the five companies.
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1.) You purchase 600 shares of XYZ Corporation at $30 per share using an initial margin of 70%. The stock is now selling for $41 per share and you want to use the excess equity in your account to pyramid. You want to purchase 400 shares of JT Corporation at $122 per share. If the minimum initial margin is 60%, what is the minimum amount of equity that you will have to put up in this transaction? 2. You purchase 500 shares of Johns Incorporated at $50 per share using an initial margin of 60%. Your maintenance margin is 25% and the minimum initial margin is 50%. A. How low can the stock price fall before you receive a margin call? B. If the stock price falls to $21 a share, how much additional equity must you add to your account?
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The Peter Corporation and the Sellers Company have both announced IPOs. You place an order for 1,250 shares of each IPO. One of the IPOs is underpriced by $15.50 and the other is overpriced by $8.25. If you could get all of the shares you ordered for each IPO, what would your profit be? Multiple Choice $9,062.50 $7,552.00 $19,375.00 $8,307.25 $29,687.50 The Bert Corporation and Ernie, Incorporated, have both announced IPOs. You place an order for 550 shares of each IPO. One of the IPOs is underpriced by $15.00 and the other is overpriced by $5.75. You will receive all of the shares you ordered of the overpriced IPO, but only one-half of the shares you ordered of the underpriced IPO. What profit do you expect? Multiple Choice $5,087.50 $4,125.00 $3,332.25 $962.50 $11,412.50 Gravity Company needs to raise $49 million to fund its expansion plans. The company will sell shares at a price of $28.20 in a general cash offer and the…
Could you help me figure out the cost of equity and WACC for a company based on the information below? This is for a scenario where Kelvin, who’s just been appointed as the financial manager of MetaGreen, wants to apply his understanding of the cost of capital from his finance course to make sound financial decisions. Here’s the company information: Company Listing and Stock Info: Listed on the stock exchange Common stock market value: $2,080,000 Beta: 2 Market risk premium: 4% Risk-free rate: 3% Cost of Capital Components: Cost of debt: 7% Cost of preferred stock: 8% Tax rate: 34% Preferred Stock Details: 40,000 preferred shares outstanding Market price of preferred stock: $34 per share Bond Info: Bonds' total market value: $560,000 Could you show me how to use CAPM to find the cost of equity and then calculate the weighted average cost of capital (WACC) for the company?
1) You are a big fan of investing in IPOs and three new IPOs are expected to hit the market this month. Assume the IPO price is $40/share for all three IPOs. When the three IPOs hit the market, they have the following characteristics: IPO Price 1st Day Market Price IPO A $40 $43 IPO B $40 $52 IPO C $40 $55 What was the average underpricing of the three IPOs? Compute the underpricing of each IPO, then take the average of the three. 2) You purchased a machine for $100,000 and you depreciate it using straight-line depreciation over its 10-year life. If you sell the machine at the end of year 6 for $22,000, what will be your after-tax salvage value? Your tax rate is 0.21? 3) You are beginning a new 5-year project that will require $90,969 in initial net working capital (t=0), which you will get back at the end of year 5. If your WACC for this project is 10%, what is the effect of the net working capital on the NPV of the project? 4) If your WACC is…
Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get for me. After 3 months, my investment record is as follows: IPO A B C D Shares Allocated to Me 500 200 1,000 0 Average underpricing Price per Share $10 20 8 12 a. What is the average underpricing in dollars of this sample of IPOs? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Average initial return Initial Return 7% 12 2 23 b. What is the average initial return on my "portfolio" of shares purchased from the four IPOs that I bid on? When calculating this average initial return, remember to weight by the amount of money invested in each issue. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) %
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In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share. If you wanted to lever up the returns of this trade, you could have executed it in your _____ account. A) cash B) margin C) brokerage D) bank
In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share. If you wanted to lever up the returns of this trade, you could have executed it in your _____ account. A) cash B) margin C) brokerage D) bank If you borrowed 50% of the upfront investment amount, your return (in percent terms) would have been _____. A) 11.10 B) 22.10 C) 44.20