BUS 225 DAYONE LL
17th Edition
ISBN: 9781264116430
Author: BLOCK
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 20, Problem 11P
a.
Summary Introduction
To calculate: The coefficient of variation, both pre and post-merger, for Knight Corporation.
Introduction:
Coefficient of variation ( CoV ):
It is the ratio of SD (standard deviation) to the mean that shows the extent of the variability of the data in relation to the population's mean.
b.
Summary Introduction
To explain: The possible impacts on Knight Corporation’s post-merger P/E ratio assuming that there are risk-averse investors.
Introduction:
P/E Ratio:
A ratio which is computed by dividing a company’s current share price by its EPS is termed as P/E ratio. It helps in valuing a company’s profitability in the present times as well as in the future.
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There are only shares of A and B companies in the market. Currently, the market value of A and B shares is $200 million and $300 million, respectively. In addition, the risk-free interest rate (Rf) is 5 per cent. The probability and rate of return for the future state of the two entities are given as follows: (Value values with a decimal place or higher to the fifth decimal place.)
1) Obtain the expected return and variance of Entity A and B, respectively.
2) When forming a market portfolio with two shares, obtain the expected return rate and variance and standard deviation of the market portfolio.
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state
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0.3
0.30
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0.4
0.15
-0.10
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0.3
0.05
0.10
Using the following data for Jackson Products Company, answer Parts a through g:
Evaluate the liquidity position of Jackson relative to that of the average firm in theindustry. Consider the current ratio, the quick ratio, and the net working capital (currentassets minus current liabilities) for Jackson. What problems, if any, are suggested by thisanalysis?b) Evaluate Jackson’s performance by looking at key asset management ratios. Are anyproblem apparent from this analysis?c) Evaluate the financial risk of Jackson by examining its times interest earned ratio and itsequity multiplier ratio relative to the same industry average ratios.d) Evaluate the profitability of Jackson relative to that of the average firm in its industry,.e) Give an overall evaluation of the performance of Jackson relative to other firms in itsindustry.f) Perform a DuPont analysis for Jackson. What areas appear to have the greatest need forimprovement?g) Jackson’s current P/E ratio is 7 times. What factor(s) are…
Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $10.78 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are summarized in the following table,
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b. Judging by your finding in part a and the stock's offering price, should you buy the stock?
c. On further analysis, you find that the growth rate in FCF beyond year 4will be 5% rather than 4%. What effect would this finding have on your responses in parts a and
b?
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