Corporate Finance

9. You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you needed a 14% return to make this deal?

Company issues 15,000 shares of stock @ $200 per share to raise $3,000,000 in capital with 5% return (cost of equity)

Financial analysts believe the stock will be at their price target of $75 in two years. Compute the value of this stock with a required return of 11.5 percent.

$10,644,800 / $2,271,400 = 4.69 Times Return on Common Stockholders’ Equity (2002) $647,645 / $1,928,960 = 33.58% Return

You are considering acquiring a common share of Sahali Shopping Center Corporation that you would like to hold for one year. You expect to receive both $1.25 in dividends and $35 from the sale of the share at the end of the year. The maximum price you would pay for a share today is __________ if you wanted to earn a 12% return. $31.25 $32.37 $38.47 $41.32

| (TCO D) Find the current dividend on a stock, given that the required return is 8 percent, the dividend growth rate is 5 percent, and the stock price is $50 per share.

The Optimal Capital structure is that Capital Structure at which the weighted Average cost of capital (Ko) is Minimum. It is that combination of Equity and Debt at which the total cost of capital is mini-mum.

Have you ever wondered exactly how major corporations manage their earnings and spendings? Each company needs to be able to keep track of the flow of their money, whether it is coming in or going out. They also need to have it documented and provide it to certain individuals. This report is a summary of their financial performance, comprised of every revenue, expense, asset, liability, and equity that company made over the past year. They provide this report to their shareholders, it is a very important tool of communication between manager and owner, and it is used for tax purposes. In order for corporations to account for their financial transactions, they need to prepare three things; an income statement, a balance sheet, and a statement of cash flows.

For the financial managers to evaluate investment opportunities, they must first determine the relevant cash

6) You purchase a share of Kamal Corporation stock for $21.40. You expect it to pay dividends of $1.07; $1.1449 and $1.2250 in years 1, 2 and 3 respectively and you expect to sell it at a price of $26.22 at the end of 4 years.

This subject guide is for a Level 3 course (also known as a ‘300 course’) offered as part of the University of London International Programmes in Economics, Management, Finance and the Social Sciences. This is equivalent to Level 6 within the Framework for Higher Education Qualifications in England, Wales and Northern Ireland (FHEQ). For more information about the University of London International Programmes undergraduate study in Economics, Management, Finance and the Social Sciences, see: www.londoninternational.ac.uk/current_students/programme_resources/lse/index.shtml

The main purpose of this report is to focus the positive accounting theory “Towards a Positive Theory of the Determination of Accounting Standards” and written by (Watts & Zimmerman, 1978) Ross L. Watts and Jerold L. Zimmerman, who indicated with a number of significant research in order to describe and contribute positive accounting theory

Stocks have two types of valuations. The first one is value created using some type of cash flow, sales or fundamental earning analysis. The second one is dictated by how much an investor willing to pay for a particular share of stock and how other investors willing to sell a

Answers to Concept Questions 1. In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm. Such organizations frequently pursue social or

Solutions to Chapter 10 Introduction to Risk, Return, and the Opportunity Cost of Capital capital gain + dividend ($44 − $40) + $2 = = 0.15 = 15.0% initial share price $40