the possible EBITs for the coming year are $300, $350, and $ 400 with the probabilities 20%, 40%, and 40% respectively. The interest payment is $90 and the corporate tax rate is 40%. There are 50 common shares outstanding. Training What is the standard deviation of EPS? A.).4490B.).5112C.).3412 D .).6322

the possible EBITs for the coming year are $300, $350, and $ 400 with the probabilities 20%, 40%, and 40% respectively. The interest payment is $90 and the corporate tax rate is 40%. There are 50 common shares outstanding. Training What is the standard deviation of EPS? A.).4490B.).5112C.).3412 D .).6322

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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am. 33.
Please solve using Excel and show formulas. You have decided to buy a car with price tag of $60,000 but you are able to negotiate the price down to $58,000. You have $5,000 saved, so you need to borrow $53,000 in a 5-year loan from your bank (your bank offers lower rates than the auto-dealer) at a 4.5% APR (annual rate). How much will you owe to the bank after 3 years?
Company A just paid dividends of $5 per share. Company A will increase its dividends by 5% every year forever. Company A pays dividends once per year, at the end of the year. The standard deviation for Company A’s stock returns is 35% and its covariance with the market is 0.15. The expected return on the market portfolio is 25%, and the standard deviation of the market portfolio is 35%. Bond yield for government bonds is 5%. According to dividend discount model and the capital asset pricing model to estimate the appropriate discount rate, What should be Company A’s share price?
8
am. 142.
am. 104.
470 -36 Assume that the dividend payout ratio will be 55 % when the rate on long term government bonds falls to 9%. Since investors are becoming more risk averse, the equity risk premium will rise to 8% and investors will require a 7% return. The return on equity will be 13%. What is the expected sustainable growth rate? a. 5.85 b. 7.15 c. 4.05 d. 6.75 e. 8.25
Am. 112.
(Common stock valuation) ASsume the following: • the investor's required rate of return is 14 percent, • the expected level of earnings at the end of this year (E,) is $14, • the retention ratio is 30 percent, • the return on equity (ROE) is 16 percent (that is, it can earn 16 percent on reinvested earnings), and • similar shares of stock sell at multiples of 7.609 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (PIE1). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? e. What would happen to the P/E ratio (PIE,) and stock price if the company increased its retention rate to 70 percent (holding all else constant)? What would happen to the P/E ratio (PIE,) and stock price if the company paid out all its earnings in the form of dividends? f. What have you learned about the relationship between the retention rate and the P/E ratios?
am. 160.
2

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