Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 12, Problem 6PS
The present value of a firm’s projected cash flows are
a. Stalwart.
b. Slow-growth firm.
c. Turnaround.
d. Asset play
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A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio?
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b.
Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment.
2.
d.
Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year.
3.
e.
Issue new stock and then use some of the proceeds to purchase additional inventory and hold the remainder as cash.
4.
a.
Use cash to increase inventory holdings.
5.
c.
Use cash to repurchase some of the company's own stock.
An unlevered firm perceives its optimal dividend policy to be a 40 percent payout ratio. Asset turnover is sales/assets = 80%, the profit margin is 10 percent, and the firm has a target growth rate of 5%.
a. Is the firm's target growth rate consistent with it other goals?
b. If not, how much does it need to increase asset turnover to achieve it goals?
c. How much would it need to increase the profit margin instead?
A)Company Z is a computer manufacturing company that is considering diversifying into financial services. This will require an investment of £100 million and this is to be raised via an equity issue. Given the following information, calculate the weighted average cost of capital (WACC) making sure that you clearly state any assumptions made:
Dividend per share, d0 = 10p.The market price per share, PE = 108p cumulative div.Earnings per share, eps = 15p.Book Value of Capital Employed = £8,400,000.There are 28 million shares in issue.£30m. 17% irredeemable debt currently quoted at £120 ex int. 800,000, 8% redeemable debentures which are redeemablein 4 years’ time and have a current market price of £82.50 ex int. £5m. 7-year term loan at 5% over base.Bank base rate = 11%.Corporation tax = 30%.
B)What assumptions lie behind the use of the WACC as a discount rate in investment appraisal.
C)In light of the above assumptions and the answer to part (a), is it safe for Company Z to use the…
Chapter 12 Solutions
Essentials Of Investments
Ch. 12 - Prob. 1PSCh. 12 - Why does it make intuitive sense that the slope of...Ch. 12 - Which one of the following firms would be...Ch. 12 - Prob. 4PSCh. 12 - How do each of the following affect the...Ch. 12 - The present value of a firm’s projected cash flows...Ch. 12 - Prob. 7PSCh. 12 - Which of the following is consistent with a...Ch. 12 - Which of the following is not a governmental...Ch. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - ATech has fixed costs of 7 million and profits of...Ch. 12 - Choose an industry and identify the factors that...Ch. 12 - What monetary and fiscal policies might be...Ch. 12 - If you believe the U.S. dollar is about to...Ch. 12 - Unlike other investors, you believe the Fed is...Ch. 12 - Consider two firms producing smartphones. One uses...Ch. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - In which stage of the industry life cycle would...Ch. 12 - Prob. 22PSCh. 12 - Why do you think the change in the index of labor...Ch. 12 - You have 5,000 to invest for the next year and are...Ch. 12 - General Weedkillers dominates the chemical weed...Ch. 12 - Prob. 26PSCh. 12 - Prob. 27PSCh. 12 - Prob. 28PSCh. 12 - Prob. 29PSCh. 12 - Prob. 30PSCh. 12 - Prob. 31PSCh. 12 - Prob. 32PSCh. 12 - Prob. 33CCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CPCh. 12 - Prob. 1WM
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