Principles of Managerial Finance Custom Edition for Wilmington University, 4/e
Principles of Managerial Finance Custom Edition for Wilmington University, 4/e
4th Edition
ISBN: 9781323419571
Author: Gitman
Publisher: Pearson Education
Question
Chapter 7, Problem 1OR
Summary Introduction

To determine: The compound annual return.

Introduction:

Return is a loss or gain incurred on the investment made by the investors. It is expressed in terms of percentage.

Expert Solution
Check Mark

Explanation of Solution

Given information:

T Company initial price of the share is $17 and its price increase to $90 after three years. The company has sold 13.3 million shares in its IPO with a par value of $0.001 per share.

The formula to compute the compound annual return is as follows:

Compound annual return=(Amount of increase in share price Initial share price)1Number of years1

Compute the compound annual return:

Compound annual return=(Amount of increase in share price Initial share price)1Number of years1=($90$17)131=($90$17)0.333331=1.74291=0.7429 or 74.29%

Hence, the compound annual return is 74.29%.

Summary Introduction

To discuss: The method used to value the shares in year 2013.

Expert Solution
Check Mark

Explanation of Solution

The method used to value the shares in year 2013 is as follows:

Free cash flow valuation model is used to value the shares of the firm without dividend facts. It is because T Company has never paid dividend and they will not pay any dividend in future too. Therefore, free cash flow valuation model is the most suitable to value the firm’s share.

Summary Introduction

To determine: The paid-in-capital recorded in the balance sheet.

Expert Solution
Check Mark

Explanation of Solution

Given information:

T Company initial price of the share is $17 and its price increase to $90 after three years. The company has sold 13.3 million shares in its IPO with a par value of $0.001 per share.

The formula to compute the paid-in-capital is as follow:

Paid-in-capital=Number of shares sold×Price per share

Compute the paid-in-capital:

Paid-in-capital=Number of shares sold×Price per share=13.3 milllion×$0.001=$0.0133 milllion

Hence, the paid-in-capital is $0.0133 million.

Summary Introduction

To discuss: Whether the consumer reports review of the Model S boost T Company’s stock due to raise in cash flows or reduction in the risk.

Expert Solution
Check Mark

Explanation of Solution

Determine whether the consumer reports review of the Model S increase T Company’s stock due to raise in cash flows or reduction in the risk:

The Consumer Report review of the Model S can increase T Company’s stock because the review reduces the risk of the company. This Review report minimizes the risk associated with the failure of the products.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 7 Solutions

Principles of Managerial Finance Custom Edition for Wilmington University, 4/e

Knowledge Booster
Recommended textbooks for you
  • Essentials Of Investments
    Finance
    ISBN:9781260013924
    Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
    Publisher:Mcgraw-hill Education,
    FUNDAMENTALS OF CORPORATE FINANCE
    Finance
    ISBN:9781260013962
    Author:BREALEY
    Publisher:RENT MCG
    Financial Management: Theory & Practice
    Finance
    ISBN:9781337909730
    Author:Brigham
    Publisher:Cengage
  • Foundations Of Finance
    Finance
    ISBN:9780134897264
    Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
    Publisher:Pearson,
    Fundamentals of Financial Management (MindTap Cou...
    Finance
    ISBN:9781337395250
    Author:Eugene F. Brigham, Joel F. Houston
    Publisher:Cengage Learning
    Corporate Finance (The Mcgraw-hill/Irwin Series i...
    Finance
    ISBN:9780077861759
    Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
    Publisher:McGraw-Hill Education
  • Essentials Of Investments
    Finance
    ISBN:9781260013924
    Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
    Publisher:Mcgraw-hill Education,
    FUNDAMENTALS OF CORPORATE FINANCE
    Finance
    ISBN:9781260013962
    Author:BREALEY
    Publisher:RENT MCG
    Financial Management: Theory & Practice
    Finance
    ISBN:9781337909730
    Author:Brigham
    Publisher:Cengage
    Foundations Of Finance
    Finance
    ISBN:9780134897264
    Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
    Publisher:Pearson,
    Fundamentals of Financial Management (MindTap Cou...
    Finance
    ISBN:9781337395250
    Author:Eugene F. Brigham, Joel F. Houston
    Publisher:Cengage Learning
    Corporate Finance (The Mcgraw-hill/Irwin Series i...
    Finance
    ISBN:9780077861759
    Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
    Publisher:McGraw-Hill Education