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- Which bonds are acceptable for investment? Justify your response with suitable computations. 2. What will be the total cost of investment in bonds? 3. Do the stock and bond investments fall within Stephanie’s investment guidelines? Show appropriate computations in support of your response.You expect KT Industries (KTI) will have earnings per share of $4.6 this year and expect that they will pay out $1.66 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 11% and their equity cost of capital is 16%. KTI's dividend growth rate is _________ (Round to two decimal places) If KTI's dividend growth rate will remain constant, and KTI's next year dividend is $1.78, then KTI's current stock price should be ________ (Round to two decimal places)2. The cash flows for an investment project are listed below. the firm will invest if the present value of the cash flows is positive. Year 1 −200 Year 2 100 Year 3 120 Should the firm undertake this project: a. If the interest rate is 5 percent? b. If the interest rate is 10 percent? 5. Given the following information, calculate tobin's q statistic: Let's suppose that a company has one million outstanding shares of stock, each valued at $25. Let us suppose also that the replacement cost of its physical capital stock is $18 million. a. Should this firm invest (net) in more physical capital?
- After careful analysis, you have determined that a firm’s dividends should grow at 15%, on average, in the foreseeable future. The firm’s last dividend was $1.5. Compute the current price of this stock, assuming the required return is 20%The formula M(t) = 1.14t + 13.21 gives the approximate total revenue for a corporation, in billions of dollars, t years after 2000. The formula applies to the years 2000 through 2013. (a) Explain in practical terms the meaning of M(5). The expression M(5) is the total revenue for the corporation, in billions of dollars, in 2005.The expression M(5) is the year in which the corporation will earn 5 billion dollars. The expression M(5) is the total revenue for the corporation, in billions of dollars, in 2013.The expression M(5) is the year in which the corporation will earn 5 billion dollars more than it earned in 2000.The expression M(5) is the total revenue for the corporation, in billions of dollars, in 2000. (b) Use functional notation to express the total revenue for 2010. M (c) Calculate the total revenue in 2010. billion dollarsINV 1 5ai Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 standard deviation = 0.173687 ETFCDA : E(r)= 0.073763 standard deviation = 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 What is the portfolio expected return for ETFUS?
- A company has no preferred stock outstanding and has 15,000,000 common shares outstanding. The company’s Net income is $30,000,000 and it pays a total of $7,500,000 in common dividends. Currently the shares trade for $20 per share. For this company, what is: (Round your answer to two decimal places, if necessary) EPS? $ DPS? $ Dividend yield? % Dividend payout rate? % Retention rate? %Suppose you expect a stock to pay a dividend of $10 every year forever and the discount rate is fixed at 5%. What would expect the price of that stock to be? What happens to the price of the stock if the discount rate falls to 2%? (Note: this exercise might help explain why the stock market is so high these days, despite the COVID-19 pandemic and lackluster economy.)9 A program, if implemented, will operate for 10 years for certain. Your best guess is that after year 10 and following each year thereafter there will be a 0.02 probability the program will end. Real net benefits are $25 the first year and are expected to grow 1% per year as long as the program is in operation. Benefits accrue at the end of the year. The real discount rate is 3.5%. What is the NPV of the horizon value of net benefits following year 10, as seen from time 0, the beginning of the first year
- Explain why a financial investor in stocks cannot earn high capital gains simply by buying companies with a demonstrated record of high profits.Suppose you expect a stock to pay a dividend of $10 every year forever and the discount rate is fixed at 5%. (a) What would you expect the price of the stock to be if it were priced according to its present value? (b) What happens to the price of the stock if the discount rate falls to 2%? (c) Now suppose you expect the dividend to grow by 1.5% every year, such that it will be $10.15 next vear. $10.30 the year after that, and so on. What are the new prices of the stock with 5% and 2% discount rates?Questions: Compute the expected intrinsic price of each stock in year 5. Assume that All stocks are fairly priced such that the intrinsic and market values are equal. Dividends are paid at the beginning of the year How many units of each stock will Stephanie buy? Support your response with relevant computations. What will be the total investment cost for shares? Show appropriate calculations. Which bonds are acceptable for investment? Justify your response with suitable computations. What will be the total cost of investment in bonds? Do the stock and bond investments fall within Stephanie’s investment guidelines? Show appropriate computations in support of your response. Will Stephanie have enough funds for her investment in stocks and bonds, when needed? What will be the surplus / shortfall, if any? Given that Stephanie’s bank offers an interest rate of 6% per year, what additional amount should she have deposited as a fixed…