Question

Satay Motors, Inc. has expected EPS of $4.50, $6.25, $7.75 for the next three years, respectively. Analysts expect that Satay will pay out 20% of EPS as dividends in years 1, 2 and 3. Satay is then expected to pay a liquidating dividend (an amount over and above the regular dividend of 20% of EPS) of $42.80 in year 3 (this is a liquidating dividend; analysts expect Satay will cease operations after Year 3). Satay's current book value is $28.00 per share, and its required rate of return on equity is 14 percent. Estimate the stock's value using the residual income model equation.

Answer #1

You are considering an investment in the shares of Kirk's
Information Inc. The company is still in its growth phase, so it
won’t pay dividends for the next few years. Kirk’s accountant has
determined that their first year's earnings per share (EPS) is
expected to be $20. The company expects a return on equity (ROE) of
25% in each of the next 5 years but in the sixth year they expect
to earn 20%. In the seventh year and forever...

2. A 7% semiannual coupon bond matures in 8
years. The bond has a face value of $1,000 and is currently trading
at $1,104. Calculate the bond’s YTM.
3. Four years earlier, Janice purchased a
$1,000 face value corporate bond with a 6% annual coupon, and
maturing in 10 years. At the time of the purchase, it had an
expected yield to maturity of 8.76%. If Janice sold the bond today
for $1,088.39, what rate of return would she have...

46. A financial analyst has been following Davis Inc., a new
high-tech firm. He estimates that the current risk-free rate
(rF) is 6.25%, the market risk premium (rM -
rF) is 5%, and the firm’s beta is 1.75. The current
dividend just paid (D0) is $1.00. The analyst estimates
that the company’s dividend will grow at a rate of 25% this year,
20% next year, and 15% the following year. After three years the
dividend is expected to grow at...

2. Your stockbroker has called has called you about Netflix,
Inc. (NFLX). She tells you that Netflix is selling for $370.00 per
share and that she expects the price in one year to be $395.00. The
expected return on NFLX has a standard deviation of 20 percent. The
market risk premium for the S & P 500 has averaged 6.0 percent.
The beta for NFLX is 1.14. The ten-year Treasury bond rate is 3
percent. NFLX does not pay a...

QUESTION 1:
XYZ Inc. has 10 million shares of common stock outstanding. The
current share price is $20 per share. The most recent dividend was
$1 and the dividend growth rate is 4%.
XYZ also has a bond issue outstanding, which is maturing in 15
years, has a face value of $100 million, 7% coupon payable
annually, and sells for 83.8786% of the face value.
XYZ also has 2,000,000 preferred shares outstanding, which are
currently selling for $40 per share...

1. Calculating project cash flows: Why do we use forecasted
incremental after-tax
free cash flows instead of forecasted accounting earnings in
estimating the NPV of a
project?
2. The FCF calculation: How do we calculate incremental
after-tax free cash flows
from forecasted earnings of a project? What are the common
adjustment items?
3. The FCF calculation: How do we adjust for depreciation when
we calculate
incremental after-tax free cash flow from EBITDA? What is the
intuition for the
adjustment?
4....

What role could the governance of ethics have played
if it had been in existence in the organization? Assess the
leadership of Enron from an ethical perspective.
THE FALL OF ENRON: A STAKEHOLDER FAILURE
Once upon a time, there was a gleaming headquarters
office tower in Houston, with a giant tilted "£"' in front, slowly
revolving in the Texas sun. The Enron Corporation, which once
ranked among the top Fortune 500 companies, collapsed in 2001 under
a mountain of debt...

Discuss ethical issues that can be identified in this
case and the mode of managing ethics Enron finds itself in this
case. How would you describe the ethical culture and levels of
trust at Enron? Provide reasons for your assessment.
THE FALL OF ENRON: A STAKEHOLDER FAILURE
Once upon a time, there was a gleaming headquarters
office tower in Houston, with a giant tilted "£"' in front, slowly
revolving in the Texas sun. The Enron Corporation, which once
ranked among...

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