Problem 2-25 Calculating Short Sale Returns (LO4, CFA3) You just sold short 850 shares of Wetscope, Incorporated, a fledgling software firm, at $60 per share. You cover your short when the price hits $50.50 per share one year later. If the company paid $0.67 per share in dividends over this period, what is your rate of return on the investment? Assume an initial margin of 55 percent. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Rate of return %
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- Please answer questions 3/4 PLEASE ! The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $24.00 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. 12.88 % If the firm's beta is 1.8, the risk-free rate is 4%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. 22 % If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the judgmental risk premium of 4% in your calculations. Round your answer to two decimal places. % 16.96? If you have equal confidence in the inputs used for the three approaches, what is your…Problem #2-4Robert McAlister2. Lauren has a margin account and deposits $50,000. Assume the prevailing margin requirement is 40%, commissions are ignored, and the Gentry Wine Corpration is selling at $35 per share.a. How many shares can Lauren purchase using the maximum allowable margin?b. What is Lauren’s profit (loss) if the price of Gentry’s stocki. rises to $45?ii. Falls to $25?c. If the maintenance margin is 30%, to what price can Gentry Wine Fall before Lauren will receive a margin call?3. Suppose you buy a round lot of Francesca Industries stock on 55% margin when the stock is selling a $20 a share. The broker charges a 10% annual interest rate, and commissions are 3% ofthe stock value on the purchase and sale. A year later you receive a $0.50 per share dividend and sell the stock for $27 a share. What is your rate of return on Francesca Industries?4. You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its yearly high of $56. Your…QUESTION 1. The current year profits of Levelex Inc. is 1.000.000₺ and expected profits for thenext year is 1.250.000₺. The average profitability of its assets is 22% and the current year dividend per face valueof 1₺ is 30%.a) Compute the intrinsic value of a stock of this company for an investor whose minimum required rate ofreturn is 25 %. b) Compute the value of this stock under the same assumptions 2 years later.
- Question 3 KejoraJLand has total earnings last year of RM5,500,000 but expect total earnings to increase to RM5,750,000 this year because of a booming in the housing industry. There are currently 1,000,000 shares of common stock outstanding. The company has RM4,000,000 worth of investments to undertake this year. The company finances 30 percent of its investments with debt and 70 percent with equity capital. The company paid RM2.80 per share dividend last year. 1) If the company follows a pure residual dividend policy, how large a dividend will shareholder receive this year? 2) If the company maintains a constant dividend payout ratio each year, how large a dividend will each shareholder receive this year? 3)If the company follows a constant dollar dividend policy, how large a dividend will each shareholder receive this year?Question No 3 (part i) (remaining part) Answer the following. i) The future earnings, dividends, and common stock price of Nabeel Inc. are expected to grow 7% per year. Common stock currently sells for $23.00 per share; its last dividend was $2.00. d) If you have equal confidence in the inputs used for the three approaches, what is your estimate of cost of common equity?Mf1. Please help answer this: Company XYZ is planning to repurchase part of its stock by issuing corporate debt. The firm’s debt-equity ratio will rise from 40% to 50 %. Currently, the firm has 50,000 debt outstanding. The cost of debt is 20% per year. The firm expects to have an EBIT of 25,000 per year in perpetuity. The firm XYZ pays no taxes. (You might need to use Modigliani-Miller Propositions to answer some of the questions.) a) What is the market value of firm XYZ before and after the stock repurchase? b) What is the expected return on the firm’s equity (ROE) before the announcement of the stock repurchase plan? c) What is the expected return on the equity of an identical all-equity firm? d) What is the expected return on the firm’s equity after the announcement of the stock repurchase plan?
- Mm.2. Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $57 million at the end of next year. a. If Roybus has 33 million shares outstanding and a weighted average cost of capital of 12.9%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.Question 3 Pantus, Inc., a manufacturer of cleaning products, just reported that its main production facility in Hong Kong was destroyed in a fire. While the plant was fully insured, the loss of production will decrease Pantus’ free cash flow by $50 million for the next three years. a) If Pantus has 45 million shares outstanding, weighted average cost of capital of 10% and equity cost of capital of 12%, what change in Pantus’ stock price would you expect upon this announcement? (Assume the value of Pantus’ debt -valued at $75 million- is not affected by the event.)INV3 P6b You are interested in determining the intrinsic value of Hoffman Inc. Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely. Lastly, your estimate of the required return on the firm’s equity is 12%. Hoffman’s recently published annual report shows the following financial relationships: Assets = 1.4 x Equity Current Assets = 1.7 x Current Liabilities Sales = 1.5 x Assets Net Income = 8% x Sales Dividends = 30% x Net Income Earnings per share (Basic) = $0.80 per share Use the multi-period DDM to estimate the intrinsic value of the company’s stock now, at the beginning of year 1.
- Question 5 You are working for Heavy Industry Exports Group. Your corporation is going to pay an annual dividend of $8 per share and extra dividend of $2.5 per share in 4 weeks. The company’s stock is currently listed and actively traded on ASX. Equipment. Ltd is a subsidiary of Heavy Industry Exports Group and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $4.5 million now and $ 9.5 million one year from now as a liquidating dividend. Required: A) The standard process of settlement in ASX is T+2. If today is the ex-dividend date for Heavy Industry Exports Group, when is the record date for dividend payment? Calculate the ex-dividend price today if the corporation’s closing price yesterday was $53.5, assuming the dividend flat tax rate is 15%. B) Heavy Industry Exports Group needs to make a payment of AUD…7. Answer both questions: a) The stock of Payout Inc. will go ex-dividend tomorrow. The dividend will be $1 per share. There are 20,000 shares of stock outstanding. The market value balance sheet for Payout is below: Assets Liabilities and equity Cash $100,000 Equity $1,000,000 Fixed assets $900,000 i) What price is Payout selling for today? Explain your answer. ii) What price will it sell for tomorrow? Explain your answer. b) Now suppose that Payout announces its intention to repurchase $20,000 worth of stock instead of paying out the dividend. i) What effect will the repurchase have on an investor who currently holds 10 shares and sells 2 of those shares back to the company in the repurchase? ii) Compare the effects of the repurchase to the effects of the cash dividend that worked out in 7(a).Questions 3. Bella Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to retain its earnings to fuel growth. The company will pay a dividend of $17 per share 10 years from today and will increase the dividend by 3.9 percent per year thereafter. If the required return on this stock is 12.5 percent, what is the current share price?