FINE 2000 Lecture Notes - Lecture 1: Dividend Yield, Common Stock, Cash Flow

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cerisehorse97

15 Sep 2016

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Common stock is entitled to a company"s residual cash flow. Price-earnings multiple or p/e ratio: ratio of stock price to eps, how much someone is prepared to pay for of earnings. Dividend yield: a stock"s cash dividend divided by its current price, for every invested in the stock, you would receive an annual dividend income of. . 50 if the dividend yield was 1. 5% Book value of equity: net worth of firm according to the balance sheet. Liquidation value: net proceeds that would be realized by selling the firm"s assets and paying off its creditors. The difference between a company"s actual value and it"s book or liquidation value is often referred to as going-concern value which refers to three factors: extra earning power. A company may be able to earn more than an adequate rate of return on assets. In this case the value of those assets will be higher than their book value or liquidation value: intangible assets.

Related Questions

Total Current Asset Current Ratio Effect on Net Income

a		Cash is acquired through issuance of additional common stock		____		____		____
b	Merchandise is sold for cash		____		____		____
c	Federal income tax due for the previous year is paid		____		____		____
d	A fixed asset is sold for less than book value		____		____		____
e	A fixed asset is sold for more than book value		____		____		____
f	Merchandise is sold on credit		____		____		____
g	Payment is made to trade creditors for previous purchases		____		____		____
h	A cash dividend is declared and paid		____		____		____
I	Cash is obtained through short- term bank loans		____		____		____
J	Short- term notes receivable are sold at a discount		____		____		____
k	Marketable securities are sold below cost		____		____		____
L	Advances are made to employees		____		____		____
m	Current operating expenses are paid		____		____		____
n	Short- term promissory notes are issued to trade creditors in exchange for past due accounts payable		____		____		____
o	10- year notes are issued to pay off accounts payable		____		____		____
p	A fully depreciated asset is retired		____		____		____

4 DEBT RATIO- Bartley Barstools has an equity multiplier of 2.4, and its assets are financed with some combination of long-term debt and common equity. What is its equity ratio? What is its debt ratio?

6 MARKET/BOOK RATIO- Jaster Jets has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt and $6 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is $32 per share. What is Jaster

greenshark669

1) A company has target values of debt, preferred and common of $23MM, $16MM and $85MM. It has book values of debt, preferred and common of $66MM, $7MM and $18MM. It also has liquidation values of debt, preferred and common of $38MM, $19MM and $6MM. What weights should it use for purposes of estimating WACC?

Debt 60.3%; Preferred 30.2%; Common 9.5%

Debt 18.6%; Preferred 12.9%; Common 68.5%

Debt 23.4%; Preferred 46.2%; Common 31.4%

Debt 72.5%; Preferred 7.7%; Common 19.8%

2) Quantix Corp has shares with a beta of 1.3. The risk free rate is 3% and the expected market return is 9%. Its tax rate is 30%. The company's shares currently trade for $45 a share. What is the company's estimated cost of retained earnings?

3) Â· A company has target weights of debt, preferred and common equity of 20%, 10% and 70%, respectively. It has liquidation values of debt, preferred and common equity of 30%, 15% and 55%. Its book values of debt, preferred and common equity are 40%, 10% and 50%. The estimated costs, net of adjustments, to the issuer are 5%, 7% and 11% for debt, preferred and common equity. Estimate the firm's weighted average cost of capital.

4) Â· Deltona issued preferred shares four years ago at $60 per share, with a promised dividend of $5 per share. The company's tax rate is 35%, and its common stock beta is 0.80. Yields on comparable risk preferred stocks are 10%. The floatation expense percentage is 10. What is the cost to Deltona to issue preferred shares under current market conditions? Express your answer as a percentage, and round to two decimal points.

5) Â· Yield to maturity (YTM) on debt issues with risk comparable to the Sonar Company is currently 10.6%. Sonar has issued debt two years ago with a YTM of 8.00%. Sonar's common stock beta is 1.15, and its tax rate is 28. The appropriate rate for Sonar to use for debt in estimating its WACC is what rate? Show your answer as a percentage, rounded to two decimal places.

6) Â· A company expects to earn $24 million in income this coming year. Its target capital structure is 30% debt, 15% preferred stock, and 55% common equity financing. The company normally pays a dividend equal to 30% of its earnings. At what point will its WACC move from one level to the next, based upon the need to issue new common shares, assuming it adheres to its target capital structure? At what total capital investment level? Show your answer in millions of dollars with one decimal point ($34,000,000 you would record as 34.0)

Narratives on the following: Based on the information in the attached pictures.

at least one ratio from each category (liquidity, asset management, debt management, profitability, and market value)

a comparison of the results of the two fiscal years for the ratios chosen (i.e., increase, decrease, ideas as to why this might have occurred)

a comparison to the industry average for the ratios chosen (i.e., how the company compares to the industry and what this means for the company)

What risk is the company facing? Is this true for the entire industry? How can the company mitigate this risk? What is the industry Beta and the company's Beta?

recommendations for individuals who may be considering investing in the chosen company

Given the model of valuation is the company priced fairly? What recommendations would you make to increase the value of the company (be thorough make specific recommendations tied back to the company's stated financial goals).

Assume that you were given an early inheritance of $50,000 and on January 2, 2015, you used the money to invest in your chosen company's stock. You held the company's stock during 2015, selling all of your shares on December 31, 2015. Answer the following:

How many shares did you purchase on January 2, 2015?

What was the initial purchase price per share of stock?

Did you earn any dividends during 2015? Cash or stock? What was the value of your dividends? Would you have received a stock-split or been part of a repurchase program?

At what price per share did you sell your stock at on December 31, 2015?

Did you make any money on your investment? If so, how much? If not, how much did you lose?

Answer based on this info:

	All Figures in 000's
Particulars	2014	2015	2016
Current Asset		2764538	3133214
Current Liability		1049014	1187659
Cash & Cash Equivalents		441850	600646
Investment others		268720	310072
Investments fixed maturity		1304962	1510538
Receivables		189869	175210
Total Assets	5998978	6872175	8150175
Shareholders Equity	1527368	1884359	2251406
Total debt		2190869	2688758
Sales		3074531	3275656
Operating profit		663024	866814
Net profit		356741	489001
Price on the last day ($)		330.62	345.05
EPS ($ per share)		18.21	24.95

Particulars	Formula	2015	2016
Current Ratio	current assets/current liabilities	2.64	2.64
Quick Ratio	(cash + investments + receivables)/curretn liabilities	2.10	2.19
Operating Margin	(Operating Profit/Sales)*100	21.57%	26.46%
Net Profit Margin	(Net Profit/Sales)*100	11.60%	14.93%
Return on Total assets	(Net profit/Average assets)*100	5.54%	6.51%
Return on common equity	(Net profit/Average shareholders equity)*100	20.91%	23.65%
Return on invested capital	(Net income -dividends)/(Debt+quity)	8.27%	7.92%
Price/Earnings	Price/EPS	18.16	13.83
Market Capitalisation	Price * Bumber of shares outstanding	6475732602	6761637756
Share outstanding	NA	19586633	19596110
Dividend per share ($)	NA	1	5
Dividend Yield	(Dividend/Price)*100	0.30%	1.45%

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FINE 2000 Lecture Notes - Lecture 1: Dividend Yield, Common Stock, Cash Flow

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