Corperate Finance Midterm Practice Questions

If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company. Year 1 $ 62.18 40.30 2.35 a. High target price b. Low target price Year 2 $67.29 43.18 2.58 Year 3- $74.18 39.27 2.73 Year 4 $78.27 46.21 High price Low price EPS Earnings are expected to grow at 9 percent over the next year. 6. What is the high target stock price in one year? 32.16. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. b. What is the low target stock price in one year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. 2.890

If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: Year 1 Year 2 Year 3 Year 4 High $87.93 $100.35 $121.89 $133.60 Low price 69.85 83.19 79.99 110.18 EPS 6.54 8.96 8.62 10.21 Earnings are expected to grow at 5.5 percent over the next year. a. What is the high target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the low target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. High target price b. Low target price price

You ran a regression of the excess return on Walmart's stock on the excess return on the market. You found the following: alpha=1.5%, beta-2.818, R^2=0.623. If Walmart's total volatility was 0.310 in that same period, what must have been the markets volatility in that same period.

The table below shows information about the performance of stocks A and B last year.   Return Standard Deviation Stock A 15 % 8.3% Stock B 14% 2.1% As a financial advisor, are there factors other than return and risk that should be considered in making this decision? Based on these factors, what stock would you recommend to the client?

Using the data in the table:, a. What was the average annual return of Microsoft stock from 2005-2017? b. What was the annual volatility for Microsoft stock from 2005-2017? a. What was the average annual return of Microsoft stock from 2005-2017? The average annual return is %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Realized Return for the S&P 500, Microsoft, and Treasury Bills, 2005-2017 S&P 500 Realized Return Microsoft Realized Return Dividends Paid* Year End 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 S&P 500 Index 1211.92 1248.29 3.00% 4.80% 1418.30 1468.36 903.25 4.70% 1.50% 0.10% 0.10% 1115.10 1257.64 1257.61 0.00% 1426.19 0.10% 1848.36 0.00% 0.00% 2058.90 2043.94 0.00% 0.20% 2238.83 2673.61 0.80% *Total dividends paid by the 500 stocks in the portfolio, based on the number of shares of each stock in the index, adjusted until the end of the year, assuming they were…

1.)  Given this return data, the average realized return on Happy Dog Soap Inc.’s stock is   _______ . 2.)  The preceding data series represents a sample of Happy Dog’s historical returns. Based on this conclusion, the standard deviation of Happy Dog’s historical returns is  _______  . 3.)  If investors expect the average realized return on Happy Dog Soap Inc.’s stock from 2016 to 2020 to continue into the future, its expected coefficient of variation (CV) is expected to equal  _______  .

If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: High price. Low price EPS Year 1 $ 86.77 69.09 6.50 Year 2 Year 3 $97.67 $118.97 81.47 8.92 82.11 8.58 Year 4 $130.84 108.02 10.17 Earnings are expected to grow at 8 percent over the next year. a. What is the high target stock price over the next year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the low target stock price over the next year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. > Answer is complete but not entirely correct. a. High target price $ 136.23 b. Low target price $ 101.58

If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: High price Low price EPS Year 1 $ 85.90 68.52 6.47 Year 2 Year 3 $95.66 $116.70 a. High target price. b. Low target price 80.18 8.89 83.70 8.55 Year 4 $128.77 106.40 10.14 Earnings are expected to grow at 6 percent over the next year. a. What is the high target stock price over the next year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the low target stock price over the next year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company over the past four years:     Year 1 Year 2 Year 3 Year 4 High price $ 99.70 $ 123.30 $ 132.70 $ 149.33 Low price 74.53 90.64 71.32 117.85 EPS 8.98 10.73 11.81 13.20   Earnings are projected to grow at 9 percent over the next year.   a. What is your high target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is your low target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Five years of realized returns for Celestial Crane Cosmetics Inc. (Crane Cosmetics) are given in the following table:   2012 2013 2014 2015 2016 Stock return 23.75% 16.15% 28.50% 39.90% 12.35%   Also note that: 1. While Crane Cosmetics was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on Crane Cosmetics's equity are calculated as arithmetic returns.   Given this return data, the average realized return on Celestial Crane Cosmetics Inc.’s stock is    .   The preceding data series represents    of Crane Cosmetics’s historical returns. Based on this conclusion, the standard deviation of Crane Cosmetics’s historical returns is    .   If investors expect the…

1.) Given this return data, the average realized return on Blue Llama Mining Inc.’s stock is  _______  . 2.) The preceding data series represents a sample of Blue Llama’s historical returns. Based on this conclusion, the standard deviation of Blue Llama’s historical returns is  _______  . 3.)  If investors expect the average realized return on Blue Llama Mining Inc.’s stock from 2016 to 2020 to continue into the future, its expected coefficient of variation (CV) is expected to equal  _______  .

Some investors use the Sharpe ratio as a way of comparing the benefits of owning shares of stock in a company to the risks. The Sharpe ratio of a stock is defined as the ratio of the difference between the mean return on the stock and the mean return on government bonds (called the risk-free rate rf ) to the SD of the returns on the stock. The mean return on government bonds is rf = 0.03% per day. The table below describes the daily return of three stocks. Date APPLE TESLA GM 01/10/2020 0.85% 4.46% 2.67% 02/10/2020 -3.23% -7.38% 0.26% 05/10/2020 3.08% 2.55% 1.64% 06/10/2020 -2.87% -2.75% -1.81% 07/10/2020 1.70% 2.73% 4.01% 08/10/2020 -0.10% 0.15% 1.87% 09/10/2020 1.74% 1.90% -0.16% 12/10/2020 6.35% 1.91% 0.16% 13/10/2020 -2.65% 0.98% -1.06% 14/10/2020 0.07% 3.28% -0.63% 15/10/2020 -0.40% -2.69% 2.90% 16/10/2020 -1.40% -2.05% 2.64% 19/10/2020 -2.55%…

A security analyst has regressed the monthly returns on Exxon Mobil equity shares over the past five years against those on the Standard & Poor's 500 stock index over the same period. The resulting regression equation is rEM = 0.08 + 1.44 rSP. Use this equation to estimate Exxon Mobil's equity beta.

You want to check if GRBH stock is fairly priced in the markets by using the fundamental analysis. For this purpose, you have gathered the following information: GRBH pays dividends once a year and the next dividend payment is expected to be made in one year. You project the EPS of the first and second year to be $5 and $7 respectively. The company dividend payout ratio is stable at 0.2. At the end of the second year, you assume that the company would become the average company in the industry. The industry average PE ratio is 8. You believe that the appropriate required rate of return on GRBH stock is 10% (CCR per annum). And the current market price of GRBH stock is $45.  ind the present value of GRBH stock based on the information above. Is the stock over- or under-priced?

You want to check if GRBH stock is fairly priced in the markets by using the fundamental analysis. For this purpose, you have gathered the following information: GRBH pays dividends once a year and the next dividend payment is expected to be made in one year. You project the EPS of the first and second year to be $5 and $7 respectively. The company dividend payout ratio is stable at 0.2. At the end of the second year, you assume that the company would become the average company in the industry. The industry average PE ratio is 8. You believe that the appropriate required rate of return on GRBH stock is 10% (CCR per annum). And the current market price of GRBH stock is $45   Find the alpha ( Expected abnormal rate of return, c ) assuming the mispriced figure would be corrected in a year.

You want to check if GRBH stock is fairly priced in the markets by using the fundamental analysis. For this purpose, you have gathered the following information: GRBH pays dividends once a year and the next dividend payment is expected to be made in one year. You project the EPS of the first and second year to be $5 and $7 respectively. The company dividend payout ratio is stable at 0.2. At the end of the second year, you assume that the company would become the average company in the industry. The industry average PE ratio is 8. You believe that the appropriate required rate of return on GRBH stock is 10% (CCR per annum). And the current market price of GRBH stock is $45. Find the present value of GRBH stock based on the information above. Is the stock over- or under-priced? Find the alpha ( Expected abnormal rate of return, c ) assuming the mispriced figure would be corrected in a year.

You are asked to analyze The Haus of Us, a local manufacturer of house decor and accessories. Last year, the company distributed P2.00 per share dividend. The company has a beta of 1.2, the risk market return of 13% and the risk free rate of 6%. Required: What would be the stock price of the dividends were expected to have a zero growth?

Ran Company wants to determine its cost of common stock equity using the CAPM. The company's investment advisors indicate that the firm’s beta is equals to 1.3;the risk-free rate is 6%;  and the market return is 10%. (Do not round off between computations. Round off the final answer to two decimal places. Example of writing your answer 2.58%)

The following table, contains beta coefficient estimates for six firms. Calculate the expected increase in the value of each firm's shares if the market portfolio were to increase by 10 percent. Perform the same calculation where the market drops by 10 percent. Which set of firms has the most variable or volatile stock returns? Input the expected increase in the value of each firm's shares if the market portfolio were to increase by 10%. (Round each answer to two decimal places.) Company Apple Inc. (AAPL) Dell Inc. (DELL) Hewlett Packard (HPQ) American Electric Power Co. (AEP) Duke Energy Corp. (DUK) Centerpoint Energy (CNP) Microsoft Money Central (MSN.com) Beta Estimate Computers and Software 2.66 1.81 1.49 Utilities 0.74 0.49 0.82 Expected Increase % % % % % %

The table below shows information about the performance of stocks A and B last year.   Return Standard Deviation Stock A 15 % 8.3% Stock B 14% 2.1% As a financial advisor, are there factors other than return and risk that should be considered in making this decision? Based on these factors, what stock would you recommend to the client? What reasons will you convey to your client to justify your decision in recommending this stock? How will this recommendation impact the client?

Using the data in the following table,, estimate the: a. Average return and volatility for each stock. b. Covariance between the stocks. c. Correlation between these two stocks. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2010 2011 2013 Stock A - 10% 20% - 5% Stock B 21% 7% - 3% 2012 5% 30% 2014 2% - 8% 2015 9% 25% I

How to solve this in excel?