Fundamentals of Financial Management (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN: 9781285867977
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 16, Problem 11SP

a.

Summary Introduction

To prepare: A monthly cash budget for the last 6 months of 2015.

Working capital:

Working capital speculation is the measure of cash, require to extend business, meet here and now business obligations and cover costs of doing business.

Cash budget:

A money spending plan is an estimation of the money inflows and outpourings for a business over a particular timeframe. This financial plan is utilized to evaluate whether the substance has adequate money to work.

b.

Summary Introduction

To prepare: The monthly estimated required financing or excess fund.

c.

Summary Introduction

To determine: The effect on the cash budget, if cash budget is prepared under the assumptions and steps which make the financial requirement valid under the assumptions.

d.

Summary Introduction

To determine: The changes in the current and debt ratio during the year with calculation and explain whether the changes in the ratios affect the ability of the firm to get bank credit.

Summary Introduction

To determine: The sensitivity analysis that shows the effect of the two factors on the maximum loan requirement.

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Problem Three (15 marks)  You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity.  Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity.  Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…
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