It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: • Carry forward a historical realized growth rate, and apply it to the future. • Locate and apply an expected future growth rate prepared and published by security analysts. • Use the retention growth model.   Suppose Johnson is currently distributing 45% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 20%. Johnson’s estimated growth rate is    %.

Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios on which they focus? Why would the inventory turnover ratio be more important for someone analyzing a grocery store chain than an insurance company? Over the past year, M.D. Ryngaert & Co. had an increase in its current ratio and a decline in its total asset’s turnover ratio. However, the company’s sales, cash, and equivalents, DSO, and fixed assets turnover ratio remained constant. What balance sheet accounts must have changed to produce the indicated changes? Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between the turnover ratios, profit margins, and DuPont equations for a grocery store and a steel company? How does inflation distort ratio analysis comparisons for one company over time (trend analysis) and…

Why does Portfolio analysis is Its value-laden terms such as cash cow and dog can lead to self-fulfilling prophecies that have caused some companiesto reduce their use of this approach?

“Suppose that you have been given a summer job at J limited, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs: The cost of the memory chips used in a radar set. Factory heating costs. Factory equipment maintenance costs. Training costs for new administrative employees. The cost of the solder that is used in assembling the radar sets. The travel costs of the company’s salespersons. Wages and salaries of factory security personnel. The cost of air-conditioning executive offices. Wages and salaries in the department that handles billing customers. Depreciation on the equipment in the fitness room used by factory workers. Telephone expenses incurred by factory management.…

In the context of capital budgeting, risk refers toSelect one: a.the chance that the internal rate of return will exceed the cost of capital b.the degree of variability of the initial investment. c.the degree of variability of the cash inflows. d.the chance that the net present value will be greater thanzero.

True or false  1. Interest Rate Parity allows a company to lock in profits by borrowing in the low interest rate currency and investing in the high interest rate currency? 2. When calculating Days Sales Oustanding, it is important to include all credit and cash sales in the equation.

Why does Limitations of Portfolio analysis is Its value-laden terms such as cash cow and dog can lead to self-fulfilling prophecies that have caused some companiesto reduce their use of this approach?

Explain in detail that increase in the capital stock would cause the real rental price of capital to (Hint: Use Cobb-Douglas production function)

27.Options buyers who are delta-hedging (riskless hedge) would do which of the following in the underlying (asset) market. A. buy when the underlying market is falling and sell when it is rising. B. sell when the underlying market is falling and buy when it is rising. C. buy whether the underlying market is falling or rising. D. sell whether the underlying market is falling or rising.

Rank (from 1 to 3) each of the following capital needs methods (Capital Preservation, Annuity, Purchasing Power Preservation) in order from the one that recommends the (1) greatest amount of annual required savings to meet retirement goal to method which recommends (3) the least amount of annual savings.