A share of stock with a beta of 0.82

September 28, 2019/in Questions Uploads /by Hannah Wangui

Question

A share of stock with a beta of 0.82 now sells for

$57. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 5%, and the market risk premium is 8%. If the stock is perceived to be fairly priced today, what must be investors’ expectation of the price of the stock at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Stock price=

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share

September 28, 2019/in Questions Uploads /by Hannah Wangui

Question

A share of stock with a beta of 0.73 now sells for $50. Investors expect the stock to pay a year-end dividend of

$4. The T-bill rate is 6%, and the market risk premium is 9%.

a. Suppose investors believe the stock will sell for $52 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a whole percentage rounded to 2 decimal places.)

opportunity cost of capital

The stock is a ______________ buy and the investors ___________.

b. At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Stock price = ___________

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Complete the statement of sources and uses of cash

September 28, 2019/in Questions Uploads /by Hannah Wangui

Question

Complete the statement of sources and uses of cash

from the entries:

Net income $ 1,700

Dividends 900

Additions to inventory 140

Additions to receivables 170

Depreciation 110

Reduction in payables 570

Net issuance of long-term debt 320

Sale of fixed assets 80

Sources:

Issuing long-term debt:

Sale of fixed assets:

Cash from operations:

Net income:

Depreciation:

Total Sources:

Uses

Additional Inventory:

Increase in accounts receivable:

Decrease in accounts payable:

Payments of dividends:

Total uses:

Company X sells on a 1/15, net 60, basis

September 28, 2019/in Questions Uploads /by Hannah Wangui

Question

Company X sells on a 1/15, net 60, basis. Company Y buys goods with an invoice of $1,500.
How

much can company Y deduct from the bill if it pays on day 15?

How many extra days of credit can company Y receive if it passes up the cash discount?

What is the effective annual rate of interest if Y pays on the due date rather than day 15?