Question Finance - 950 Words

EXERCISE 5 (RISK AND RETURN) 1. Perry purchased 100 shares of Ferro, Inc. common stock for $25 per share one year ago. During the year, Ferro, Inc. paid cash dividends of $2 per share. The stock is currently selling for $30 per share. If Perry sells all of his shares of Ferro, Inc. today, what rate of return would he realize? Answer: Realized return = = 28% 2. Tim purchased a bounce house one year ago for $6,500. During the year it generated $4,000 in cash flow. If Time sells the bounce house today, he could receive $6,100 for it. What would be his rate of return under these conditions? Answer: Realized return = = 55% 3. Asset A was purchased six months ago for $25,000 and has generated $1,500 cash flow during that†¦show more content†¦10. Assuming a risk-free rate of 8 percent and a market return of 12 percent, would a wise investor acquire a security with a Beta of 1.5 and a rate of return of 14 percent given the facts above? Answer: K = RF + b(Km - RF) = 0.08 + 1.5(0.12 - 0.08) = 0.14 = 14% Yes, a security with a beta of 1.5 should yield 14 percent rate of return. 11. Dr. Dan is considering investment in a project with beta coefficient of 1.75. What would you recommend him to do if this investment has an 11.5 percent rate of return, risk-free rate is 5.5 percent, and the rate of return on the market portfolio of assets is 8.5 percent? Answer: K = RF + b(Km - RF) = 0.055 + 1.75(0.085 - 0.055) = 0.108 = 10.8% Dr. Dan should invest in the project because the project s actual rate of return (11.5 percent) is greater than the project s required rate of return (10.8Show MoreRelatedFinance Questions723 Words   |  3 Pages Provide detailed descriptions and show all calculations used to arrive at solutions for the following questions: 1. Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for six days on average. The hospital is exploring a lockbox arrangement that promises to cut the six days to one day. If these funds released by the lockbox arrangement can be invested at 8 percent, what will the annual savings be? Assume theRead MoreQuestions on Finance2789 Words   |  12 Pagesï » ¿FIN 301 HW Chapter 1 (Odds 1-17) 1. Define shareholder wealth. Explain how it is measured Shareholder wealth is represented by the market price of a firm’s common stock. It is measured by the market value of the shareholders’ common stock holdings 2. Which type of corporation is more likely to be a shareholder wealth maximizer -one with wide ownership and no owners directly involved in the firms management or one that is closely held. A closely held corporation 3. It has been argued that shareholderRead MoreAccounting Finance Questions1228 Words   |  5 PagesQuestion 1 Listing on a stock exchange might be highly desirable for a company, but there are a number of requirements, conditions and costs associated with becoming a publicly listed corporation. a) Discuss the ASX profit test and asset test requirements. b) Analyse the advantages and costs that are incurred when a company becomes a publicly listed corporation. a) To meet the profit test requirements of admission, an entity must satisfy each of the following conditions: * The entityRead MoreFinance and Question Essay1396 Words   |  6 PagesQuestion 1 (5 points) In a world with no frictions (i.e., taxes, etc.), having debt is always better because it increases the value of the firm/project. Your Answer Score Explanation True. False. Correct 5.00 Correct. You understand the irrelevance of financing. Total 5.00 / 5.00 Question Explanation Fundamental question about value creation. Question 2 (5 points) The return of equity is equal to the return on debt of a project/firm Your Answer Score Explanation SometimesRead MoreQuestions On Sources Of Finance1696 Words   |  7 PagesIn this assignment, four different sources of finance preferably two short term and two long term sources of funding will be discussed and identified. Secondly, it will also talk about and select to non-financial companies listed on the London Stock Exchange and will find their most current financial statements based on the last 5 years. I have selected Tesco and Sainsbury’s as my two non financial companies. Thirdly, I will then define and converse the pros and cons of each source of funding andRead MoreBusiness Finance: Questions1612 Words   |  7 Pagesï » ¿Question 1 Reliable Gearing currently is all-equity financed. It has 10,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $200,000 with the proceeds used to buy back stock. The high debt plan would exchange $400,000 of debt for equity. The debt will pay an interest rate of 10%. The firm pays no taxes. a. What will be the debt-to-equity ratio after each possible restructuring? b. If earningsRead MoreCorporate Finance - Concept Questions12247 Words   |  49 PagesCONCEPT QUESTIONS - CHAPTER 1 1.1 ( What are the three basic questions of corporate finance? a. Investment decision (capital budgeting): What long-term investment strategy should a firm adopt? b. Financing decision (capital structure): How much cash must be raised for the required investments? c. Short-term finance decision (working capital): How much short-term cash flow does company need to pay its bills. ( Describe capital structure. Capital structureRead MoreQuestions On Finance Lease And Operating Lease Essay894 Words   |  4 PagesQuestion a It can be found from the IAS 17; the lease is defined that â€Å"A lease is an arrangement whereby the lessor coveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time†. (IAS 17, 2003). There are two types of lease: finance lease and operating lease. The following parts will identify them separately and accounting treatments will be discussed in lessees’ and lessors’ aspect. Firstly, it is the finance lease and it is a lease thatRead MoreFinal Question Paper: Corporate Finance24063 Words   |  97 Pages80 | 1.53 | $44.06 | Wal-Mart | $47.90 | 4.17 | $199.74 | Intel | $19.60 | 5.77 | $113.09 | Boeing | $75.00 | 0.79 | $59.25 | | | Total | $416.15 | | ------------------------------------------------- Use the table for the question(s) below. Consider the following three individuals portfolios consisting of investments in four stocks: Stock | Beta | Peter s Investment | Paul s Investment | Mary s Investment | Eenie | 1.3 | 2500 | 5000 | 10000 | Meenie | 1.0 | 2500Read MoreIssues in Applied Finance Financial Planning Assignment: Questions Answers1104 Words   |  5 PagesAFIN310 Issues in Applied Finance Financial Planning Assignment: Questions Answers General Questions 1. Is an introduction / executive summary and conclusion required? No. You are to answer each question and keep to a total maximum of 15 pages, excluding cover page. No marks will be provided for anything written on page 16 or beyond. Students are recommended to refer to the mark allocation when answering each question. 2. Is specific formatting required? Eg The font you can use is Calibri, size