Perry Coporations achieved great investment success, even though the value of assets under management grew rapidly. With an initial investment of $1 million, it currently has a value of $ 15.3 million. They currently have 1 million shares outstanding. Perry Corporation is reported to be one of the best electronics companies in the world by Forbes. Since this news, the company's stock price has increased from $ 16 to $ 20 per share. a. What kind of phenomenon happened to Perry Corporation's stock? b. What can a rational investor do to take an arbitrage opportunity?

Perry Coporations achieved great investment success, even though the value of assets under management grew rapidly. With an initial investment of $1 million, it currently has a value of $ 15.3 million. They currently have 1 million shares outstanding. Perry Corporation is reported to be one of the best electronics companies in the world by Forbes. Since this news, the company's stock price has increased from $ 16 to $ 20 per share. a. What kind of phenomenon happened to Perry Corporation's stock? b. What can a rational investor do to take an arbitrage opportunity?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose Rocky Brands has earnings per share of $2.35 and EBITDA of $31.4 million. The firm also has 5.9 million shares outstanding and debt of $115 million (net of cash). You believe Jared's Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Jared's has no debt. If Jared's has a P/E of 13.3 and an enterprise value to EBITDA multiple of 7.5, estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate? Rocky Brands' stock value by using the P/E ratio is $31.26 per share. (Round to two decimal places.) million. (Round to one decimal place.) The value of Rocky Brands by using the P/E ratio is $ 184.4 The value of Rocky Brands by using the EBITDA ratio is $ million. (Round to one decimal place.)
Ivanhoe Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Ivanhoe has had a policy of investing idle cash in equity securities. In particular, Ivanhoe has made periodic investments in the company’s principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Ivanhoe does not have significant influence over the operations of Norton Industries.Cheryl Thomas has recently joined Ivanhoe as assistant controller, and her first assignment is to prepare the 2020 year-end adjusting entries for the accounts that are valued by the “fair value” rule for financial reporting purposes. Thomas has gathered the following information about…
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CASE INFORMATION RK Corp, a publically traded NASDAQ company (symbol ARK), is a manufacturer of electrical automobiles. Based in Chicago, the company has been operating since 1996. The company sells their electric automobiles to auto manufacturers as well as the retail market on a worldwide basis. Its major clients are Ford, General Motors and Toyota. Ark has captured about 10 percent of the world market of the electrical automobile sales. Its stock sells at 25 US Dollars per share, and its 52-week price range is between 19.75 and 27.15 US Dollars, with a market cap of 10.6 billion dollars. Their financial statements presented below for the year ending December 31, 2011 has been prepared using GAAP (Tables 1 and Table 2). The controller would like to see the effect of IFRS treatment of leases on the financial statements, and you have been assigned this task. In particular, the controller would like to see the impact GAAP and IFRS differences have on balance sheet, income statement and…
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Could you please solve these questions?
4. Needham Inc. is a steel company that reported $ 100 million in net income in the just- completed financial year. The firm has a payout ratio of 30% and the dividends in the most recent year were exactly were exactly equal to the free cash flows to equity. The firm was all equity financed. a. Assume that you expect Needham to maintain a growth rate of 10% a year in net income and reinvestment (net cap ex and change in working capital) for the next year and that you anticipate that the firm will fund 20% of its new investments (net cap ex and working capital) with debt. If you maintain the policy of paying out the entire free cash flow to equity as dividends, what payout ratio can the firm afford next year? b. Needham currently has a cash balance of $ 100 million. If Needham increases its payout ratio to 40% and buys back $ 50 million in new stock next year, estimate how much its cash balance will be at the end of next year. (You can use the net income, reinvestment and debt numbers…
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Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year’s earnings are forecast at $52 million. There are 10 million outstanding shares. The company has traditionally used 50% of earnings to repurchase shares of stock and has reinvested the remaining earnings. With reinvestment, the company has generated steady growth averaging 5% per year. Assume the cost of equity is 10%. 1. Surf & Turf’s CFO announces a switch from repurchases to a regular cash dividend. Next year’s dividend will be $3.10 per share. The CFO reassures investors that the company will continue to pay out 50% of earnings and reinvest 50%. All future payouts will come as dividends, however. What would you expect to happen to Surf & Turf’s stock price? Ignore taxes.
The answer was incorrect. Could I have help with this one? Futuristic Development (FD) generated $3 million in sales last year with assets equal to $5 million. The firm operated at full capacity last year. According to FD's balance sheet, the only current liabilities are accounts payable, which equals $380,000. The only other liability is long-term debt, which equals $750,000. The common equity section is comprised of 400,000 shares of common stock with a book value equal to $3 million and $870,000 of retained earnings. Next year, FD expects its sales will increase by 16 percent. The company's net profit margin is expected to remain at its current level, which is 11 percent of sales. FD plans to pay dividends equal to $0.60 per share. It also plans to issue 50,000 shares of new common stock, which will raise $395,000. Estimate the additional funds needed (AFN) to achieve the forecasted sales next year. Round your answer to the nearest dollar.
Futuristic Development (FD) generated $2 million in sales last year with assets equal to $5 million. The firm operated at full capacity last year. According to FD's balance sheet, the only current liabilities are accounts payable, which equals $460,000. The only other liability is long-term debt, which equals $730,000. The common equity section is comprised of 500,000 shares of common stock with a book value equal to $3 million and $810,000 of retained earnings. Next year, FD expects its sales will increase by 22 percent. The company's net profit margin is expected to remain at its current level, which is 16 percent of sales. FD plans to pay dividends equal to $0.60 per share. It also plans to issue 70,000 shares of new common stock, which will raise $460,000. Estimate the additional funds needed (AFN) to achieve the forecasted sales next year. Round your answer to the nearest dollar.

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