Question 1: 5 marksYou are an investor in Borrow-Happy Ltd., which has a debt-equity ratio of 3:1.Though you have had a good experience thus far, you are influenced by anexpert's advice published in media and decide to move your investment to a firmcalled Equity-Safe Inc. which is completely equity financed. You will do thisby selling off your shares worth $35,000 and use the sales proceeds to partlyfinance your share purchase in the new firm. If you wish to retain the sameearnings that you enjoyed with Borrow-Happy Ltd. how many dollars' worth ofshares you will need to buy in Equity-Safe Inc.? Provide supporting computationsto your response.Question 2: 5 marks

Question 1:To determine how many dollars' worth of shares you need to buy in Equity-Safe Inc. to…

Answered: Question 1: 5 marks You are an investor…

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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Problem #3 Westfield Capital Management Co.’s equity investment strategy is to invest in companies with low price-to-book ratios, while considering differences in solvency and asset utilization. Westfield is considering investing in the shares of either Jerry’s Departmental Stores ( JDS) or Miller Stores (MLS). Selected financial data for both companies follow: SELECTED FINANCIAL DATA AS OF MARCH 31, 2006 ($ millions) JDS MLS…
Question 4 An investor bought 100 shares of following 3 securities. You are required to calculate overall HPY and HPR and also suggest to investors by using HPR and HPY about the most profitable security. Bought FFC for Rs. 102 and sell for Rs. 115 ENG for Rs. 150 and sell for Rs. 172MEL for Rs. 456 and sold for Rs. 421
F2 A few publicly listed home appliance manufacturing companies have the following beta, debt, and equity: Company Beta Debt Equity Apple 1.4 ₹ 2,500 ₹ 3,000 Pear 1.2 ₹ 5 ₹ 200 Grape 1.2 ₹ 540 ₹ 2,250 Tomato 0.7 ₹ 8 ₹ 300 Watermelon 1.5 ₹ 2,900 ₹ 4,000 Calculate the beta of the industry keeping in mind the publicly listed sector only, with a debt equity ratio of 25%. (Assume a Tax Rate for all companies at 35%) (Hint- One way is to compute the unlevered betas of each of the five firms and then average these unlevered betas and substitute it as the unlevered beta for a private company)
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Additional Problem 3-5 Suppose that you just short sold 100 shares of Quiet Minds stock for $86.00 per share. Required: a. If the initial margin requirement is 60%, how much equity must you invest? (Round your answer to the nearest dollar) Equity b. Construct the balance sheet that corresponds to the transaction described in requirement a Stock T-bilis Total assets Assets Liabilities and Equity Short position (100 shares) Equity Total liabilities and equity
Pls correct and stepwise
The Financial Sector-End of Chapter Problem You are discussing buying stocks with a friend and mention that you want to buy a few shares of Amazon stock. Your friend says that's a terrible idea because Amazon has never paid dividends to its shareholders so you would never receive any of Amazon's profits or make any money off the stock. What might you say to your friend to defend your desire to purchase a few shares of Amazon stock? You explain that the price of Amazon stock will always have to rise because dividends are not paid. the fundamental value of the stock is not determined by the dividends paid, but by the present value of future profits. purchasing stock is better than purchasing bonds because stockholders are the first in line to get paid if the company goes bust. buying a few shares will give you a significant say in how Amazon will be run in the future.
Problem 2-19 Debt versus Equity Financing (LG2-1) You are considering a stock investment in one of two firms (NoEquity, Inc. and NoDebt, Inc.), both of which operate in the same industry and have identical operating income of $13.5 million. NoEquity, Inc. finances its $75 million in assets with $74 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Inc. finances its $75 million in assets with no debt and $75 million in equity. Both firms pay a tax rate of 30 percent on their taxable income. Calculate the net income and return on assets for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 2 decimal places.) NoEquity NoDebt Net income million million Return on assets % %
Question 2 You have been appointed as a financial consultant by the directors of Baron Holdings. They require you to determine the cost of capital of the company. The following information is available on the capital structure of the company: ü 1 500 000 ordinary shares, with a market price of R3 per share. The latest dividend declared was 86 cents per share. A dividend growth of 15% was maintained for the past 5 years. ü 1 000 000 11%, R1 preference shares, with a market value of R3 per share. ü R1 000 000 9%, debentures due in 7 years and the current yield-to-maturity is 10%. Note that the current price of the debenture is R951 356 ü R700 000 14%, bank loan, due in December 2021. Additional information: - The company has a tax rate of 30%. - The beta of the company is 1.7, a risk free rate of 5% and the return on the market is 14%. Required: 2.1 Calculate the weighted average cost of capital. Use the Gordon Growth Model to calculate the cost of equity 2.2 Calculate the cost of…
Q3 Which of the following statements is CORRECT? a. Capital market instruments include both long-term debt and common stocks. b. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift. c. The NYSE does not exist as a physical location; rather, it represents a loose collection of dealers who trade stocks electronically. d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction. e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

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