DIVIDEND GROWTH RATE, business and finance homework help

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A firm has assets valued at $950M, liabilities properly valued at $760M. What is the maximum percentage drop in asset prices a firm can withstand before becoming insolvent?

Question 1 options:

80.0%

25.0%

44.4%

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QUESTION 2 (3 POINTS)

Question 2 Saved

Which of the following is not true of WACC?

Question 2 options:

The optimal WACC maximizes firm value

Higher tax rates increase WACC

Firms attempt to earn returns on capital greater than WACC

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QUESTION 3 (3 POINTS)

Question 3 Unsaved

Which statement is incorrect regarding illiquidity and/or insolvency?

Question 3 options:

Different industries have different norms regarding liquidity and leverage

Bankruptcy occurs when you are deemed illiquid or insolvent

Illiquidity can cause a solvent company to become insolvent

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QUESTION 4 (3 POINTS)

Question 4 Unsaved

In which scenario should a company be most inclined to issue additional debt?

Question 4 options:

Interest rates have tripled in the last 3 months to a 20-year high

The company is illiquid with an overvalued stock price and high leverage

The company’s stock price has just doubled as they completed a 2-1 stock split

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QUESTION 5 (3 POINTS)

Question 5 Saved

Assume a business can receive a guaranteed annual payment of $5M forever. If the appropriate discount rate 10.0%, how much should the business be willing to pay today for these future payments (hint: is this an annuity, annuity due, or perpetuity)?

Question 5 options:

$100.0M

$10.0M

$50.0M

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QUESTION 6 (3 POINTS)

Question 6 Unsaved

If you were using the Gordon Growth Model to value a company, which of the following variables would not help you value the company?

Question 6 options:

Debt/Equity Ratio and ROE

Next Year’s Net Income and Retention Rate

Required Return on the Stock

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QUESTION 7 (3 POINTS)

Question 7 Saved

Cash Conversion Cycle is influenced by how well a company does the following:

Question 7 options:

Rolls over its short-term debt to stay liquid

Converts inventory into sales into cash

Gets paid in cash on its stock investments

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QUESTION 8 (3 POINTS)

Question 8 Saved

Which of the following is a key assumption of the Internal Growth Rate?

Question 8 options:

The company’s retention rate is constant over time

The company’s net income is constant over time

The company’s leverage is constant over time

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QUESTION 9 (3 POINTS)

Question 9 Unsaved

Which of the following cannot be found if you know a company’s most recent year’s dividend, retention rate, dividend growth rate and stock price?

Question 9 options:

Sustainable growth rate

Dividend paid two years from now

Required return on the stock

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QUESTION 10 (3 POINTS)

Question 10 Saved

A company’s bond is most likely said to be trading at a discount in which scenario?

Question 10 options:

The bond is undervalued

The bond’s yield to maturity is lower than its coupon rate

The bond’s yield to maturity is higher than its coupon rate

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QUESTION 11 (3 POINTS)

Question 11 Saved

Which of the following is a benefit of the Sharpe ratio?

Question 11 options:

The Sharpe ratio tells you the return an investment will earn

The Sharpe ratio tells you how efficient the market is

The Sharpe ratio is a way of hedging different risks

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QUESTION 12 (6 POINTS)

Question 12 Saved

Calculate the Days Payables Outstanding in 2014 for a company with the following financial measures:

YE 2012 Accounts Payable = $375M

YE 2013 AP = $385M YE 2014 AP = $345M

2013 Sales = $1.3B

2013 Gross Margin % = 60.0%

2014 Sales = $1.6B 2014 GM % = 55%

Question 12 options:

175 days

215 days

150 days

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QUESTION 13 (3 POINTS)

Question 13 Unsaved

Which describes the results of a company with the following ratios regarding its Cash Conversion Cycle?

2014 DIO = 15 2014 DSO = 19

2014 DPO = 27 2015 DIO = 15

2015 DSO = 22 2015 DPO = 27

Question 13 options:

  1. The company increased its CCC by 3 days because it held its inventory longer

  1. The company increased its CCC by 3 days because it collected its receivables more quickly

  1. The company increased its CCC by 3 days because it took longer to collect its receivables

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QUESTION 14 (3 POINTS)

Question 14 Unsaved

Which of the following describes a common feature of ordinary annuities and annuities due?

Question 14 options:

Constant payments are made indefinitely

The amount paid for given payments over time implies a rate of interest

The value of the remaining cash flows remains constant over time

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QUESTION 15 (6 POINTS)

Question 15 Unsaved

Calculate the sustainable AND internal growth rate for a company with the following financial information. Assume all ratios are constant.

2014 Company Data

Sales = $200M

Average Assets = $270M

Dividends Paid = $15M Net Income = $20M

Average Equity = $220M

Question 15 options:

SGR = 5.9% and IGR = 7.3%

SGR = 7.3% and IGR = 5.9%

SGR = 2.3% and IGR = 1.9%

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QUESTION 16 (6 POINTS)

Question 16 Unsaved

Calculate the value of the following bond that was just issued, rounded to the nearest dollar (no payments made yet):

A 30-year bond has an 6% coupon rate, with payments made semi-annually and a par value of $1,000. Similar bonds have a YTM of 8%.

Question 16 options:

$1,277

$900

$774

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QUESTION 17 (6 POINTS)

Question 17 Unsaved

Calculate the Cost of Common Equity for a company with the following data and estimates:

Today’s stock price: $73.00

Constant Retention Rate = 40%

Estimated T+1 Earnings = $5.00/share

Estimated Earnings Growth Rate = 8%

Question 17 options:

12.1%

10.7%

14.8%

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QUESTION 18 (6 POINTS)

Question 18 Unsaved

A money manager requires all stocks in his or her portfolio to have, at worst, a Sharpe Ratio of 2.0. Currently, the market risk premium is estimated to be 6.5%. If a stock has a standard deviation of 7% and a Beta of 1.25, will it meet this criteria? (Hint: will require algebra to combine the Sharpe Ratio formula and the CAPM formula)

Question 18 options:

This stock doesn’t meet the criteria because the Sharpe Ratio is less than 2.0

This stock meets the criteria because the Sharpe Ratio is less than 2.0

This stock doesn’t meet the criteria because the Sharpe Ratio is greater than 2.0

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QUESTION 19 (6 POINTS)

Question 19 Unsaved

Calculate the WACC of the company with the characteristics below:

Common Equity: $125M in common equity trading at $15/share with most recent year’s dividend of $0.75/share and a dividend growth rate of 10% per year

Preferred Equity: $25M in preferred equity trading at $25/share with a constant $2.75/share dividend

Debt: $100M in bonds with a YTM and coupon rate of 7.5%

Marginal Tax Rate = 25%

Risk-Free Rate = 3%

Market Risk Premium = 7%

Question 19 options:

11.1%

10.5%

9.6%

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QUESTION 20 (3 POINTS)

Question 20 Saved

Which of the following is a true statement about diversification?

Question 20 options:

The diversification benefits of adding a stock to your portfolio are the same if you own 2 stocks or 100 stocks

The more correlated the stocks in your portfolio are, the more diversified you are

Diversification allows you to eliminate all risks when investing in stocks
 
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