FIN 571 Week 4 Connect Problems

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FIN 571 Week 4 Connect Problems

Q-1
The price to sales ratio and price to book value ratio have shown
negative trends in the last three years, which shows that the stock of the
company is available at cheap price as compare to the price it was
carrying three years back.
If the yield to maturity is 8.1 percent, what is the current price of the
bond? (Do not round intermediate calculations and round your answer to
2 decimal places, e.g., 32.16.)

Q-1 (Set 2)

Watters Umbrella Corp. issued 30-year bonds 2 years ago at a coupon

rate of 7.4 percent. The bonds make semiannual payments. If these
bonds currently sell for 83 percent of par value, what is the YTM? (Do
not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
2.Microhard has issued a bond with the following characteristics:

Par: $1,000
Time to maturity: 15 years
Coupon rate: 11 percent
Semiannual payments

Calculate the price of this bond if the YTM is (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.):

Q-2 (Set 2)

Union Local School District has bonds outstanding with a coupon rate of
3.7 percent paid semiannually and 15 years to maturity. The yield to
maturity on these bonds is 4.3 percent and the bonds have a par value
of $5,000.

What is the dollar price of the bond? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)

Q-3 (Set 1)

Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon
rate of 5.5 percent paid semiannually and 16 years to maturity. The yield
to maturity of the bond is 5.8 percent.

What is the dollar price of the bond? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)

Q-3 (Set 2)

A Japanese company has a bond outstanding that sells for 90 percent of

its 100,000 par value. The bond has a coupon rate of 5.7 percent paid
annually and matures in 19 years.
What is the yield to maturity of this bond? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)

Q-4 (Set 1)
The next dividend payment by ECY, Inc., will be $1.96 per share. The
dividends are anticipated to maintain a growth rate of 4 percent, forever.
The stock currently sells for $39 per share.

What is the dividend yield? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

Dividend yield %

What is the expected capital gains yield? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)

Capital gains yield %

Q-4 (Set 2)
4.Schiller Corporation will pay a $3.14 per share dividend next year. The
company pledges to increase its dividend by 5 percent per year,
indefinitely. If you require a return of 12 percent on your investment, how
much will you pay for the companys stock today? (Do not round
intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.)

5. Siblings, Inc., is expected to maintain a constant 3.6 percent growth

rate in its dividends, indefinitely. The company has a dividend yield of 5.4
percent.

What is the required return on the company's stock? (Do not round
intermediate calculations and enter your answer as a percent rounded to
2 decimal places, e.g., 32.16.)

Required return %
 5. (Set 2) The next dividend payment by ECY, Inc., will be $1.60 per
share. The dividends are anticipated to maintain a growth rate of 6
percent, forever. The stock currently sells for $30 per share.

What is the required return? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

Q-6 (Set 1)

Ayden, Inc., has an issue of preferred stock outstanding that pays a

dividend of $6.75 every year, in perpetuity. This issue currently sells for
$93 per share.

What is the required return? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

Q-6 (Set 2)

6. The Starr Co. just paid a dividend of $1.55 per share on its stock. The
dividends are expected to grow at a constant rate of 6 percent per year,
indefinitely. Investors require a return of 14 percent on the stock.

What is the current price? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

What will the price be in three years? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)

What will the price be in 7 years? (Do not round intermediate

calculations and round your answer to 2 decimal places, e.g., 32.16.)

7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07
percent and the market rate of return is 11.81 percent. What is the
amount of the risk premium on Zoom stock?

8. The risk premium for an individual security is computed by:

9. The risk-free rate of return is 3.68 percent and the market risk
premium is 7.84 percent. What is the expected rate of return on a stock
with a beta of 1.32?

10. Mullineaux Corporation has a target capital structure of 70 percent

common stock and 30 percent debt. Its cost of equity is 18 percent, and
the cost of debt is 6 percent. The relevant tax rate is 30 percent.

What is the companys WACC? (Do not round intermediate calculations

and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

11.Miller Manufacturing has a target debtequity ratio of .55. Its cost of

equity is 14 percent, and its cost of debt is 9 percent. If the tax rate is 40
percent, what is the companys WACC? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places,

12.Filer Manufacturing has 4 million shares of common stock

outstanding. The current share price is $76, and the book value per
share is $5. The company also has two bond issues outstanding. The
first bond issue has a face value $90 million, a coupon of 5 percent, and
sells for 94 percent of par. The second issue has a face value of $70
million, a coupon of 6 percent, and sells for 104 percent of par. The first
issue matures in 20 years, the second in 3 years.

a. What are the company's capital structure weights on a book

value basis? (Do not round intermediate calculations and round your
answers to 4 decimal places, e.g., 32.1616.)

b. What are the company's capital structure weights on a market

value basis? (Do not round intermediate calculations and round your
answers to 4 decimal places, e.g., 32.1616.)

c. Which are more relevant?

13. Titan Mining Corporation has 8.9 million shares of common stock
outstanding and 330,000 5 percentsemiannual bonds outstanding, par
value $1,000 each. The common stock currently sells for $37 per share
and has a beta of 1.45, and the bonds have 15 years to maturity and sell
for 118 percent of par. The market risk premium is 7.7 percent, T-bills are
yielding 4 percent, and the companys tax rate is 40 percent.