 # Finance: Investment and Common Stock

Satisfactory Essays
479 Words Grammar Plagiarism  Writing  Score Finance: Investment and Common Stock CFGB6102 Corporate Finance
Stock Valuation
1. A firm’s common stock currently sells for \$75 per share. The firm has total assets of \$1,000,000 and total liabilities, including preferred stock, of \$350,000. If the firm has 10,000 shares of common stock outstanding,
(a) what is the book value of each share of common stock?
(b) is the stock overvalued or undervalued in the marketplace?
(a)
(b) overvalued
(c) market value of the assets is greater than the book value.
2. A firm has current assets of \$800,000, which can be liquidated at 90 percent of book value. Total liabilities, including preferred stock, equal \$270,000. The firm has 15,000 shares of common stock outstanding. What is the liquidation value per share of common stock?

3. Antique Replicas, Inc., has a beta of 1.40, the annual risk free rate of interest is currently 10 percent, and the required return on the market portfolio is 16 percent. The firm estimates that its future dividends will continue to increase at an annual compound rate consistent with that experienced over the 2000–2003 period.
Year Dividend
2000 \$2.70
2001 2.95
2002 3.25
2003 3.40
(a) Estimate the value of Antique Replicas, Inc., stock.
(b) A lawsuit has been filed against the company by a competitor, and the potential loss has increased risk, which is reflected in the company’s beta, increasing it to 1.6. What is the estimated price of the stock following the filing of the lawsuit.
(a) ks  0.10  1.4(0.16 – 0.10)  0.184 growth rate of dividends  \$3.40/\$2.70  1.259 FVIF3, k  8% Po  \$3.40(1.08)/(0.184 – 0.08)  \$35.31
(b) ks  0.10  1.6(0.16 – 0.10)  0.196 Po  \$3.40(1.08)/(0.196 – 0.08)  \$31.66
4. Tangshan China’s stock is currently selling for \$160.00 per share and the firm’s dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China’s most recent dividend was \$5.50. The expected risk free rate of return is 3

## You May Also Find These Documents Helpful

• Satisfactory Essays

BE 1-8: Use the basic accounting equation to answer these questions. (a)The liabilities of Cummings Company are \$90,000 and the stockholders' equity is \$230,000. What is the amount of Cummings Company's total assets?…

• 610 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

Quiz I (Chapters 1and 2) Date: Name: ID: Answer the following Questions: 1. Tower Inc. owns 30% of Yale Co. and applies the equity method. During the current year, Tower bought inventory costing \$66,000 and then sold it to Yale for \$120,000. At year-end, only \$24,000 of merchandise was still being held by Yale. What amount of inter-company inventory profit must be deferred by Tower? A. \$6,480 B. \$3,240 C. \$10,800 D. \$16,200 E. \$6,610 2. All of the following statements regarding the investment account using the equity method are true except A. The investment is recorded at cost B. Dividends received are reported as revenue C. Net income of investee increases the investment account D. Dividends received reduce the investment account E. Amortization of fair value over cost reduces the investment account 3. After allocating cost in excess of book value, which asset or liability would not be amortized over a useful life? A. Cost of goods sold B. Property, plant, & equipment C. Patents D. Goodwill E. Bonds payable…

• 1502 Words
• 7 Pages
Satisfactory Essays
• Satisfactory Essays

(a) The liabilities of Cummings Company are \$90,000 and the stockholders' equity is \$230,000. What is the amount of Cummings Company's total assets?…

• 413 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

\$4.55. \$3.75. \$3.50. \$4.30. \$4.15 A company has net income of \$870,000; its weighted-average common shares outstanding are 174,000. Its dividend per share is \$1.25, its market price per share is \$104, and its book value per share is \$100.00. Its price-earnings ratio equals…

• 6905 Words
• 80 Pages
Satisfactory Essays
• Good Essays

RP = (0.09 × \$100) / \$49 = 0.183673 = 18.37 percent (4) - The Auto Group has 1,000 bonds outstanding that are selling for \$840 each. The company also has 8,300 shares of preferred stock at a market price of \$65 each. The common stock is priced at \$60 a share and there are 29,000 shares outstanding. What is the weight of the preferred stock as it relates to the firm's weighted average cost of capital?…

• 2213 Words
• 8 Pages
Good Essays
• Satisfactory Essays

Question 6 of 25 | 4.0 Points | A firm has current assets of \$100,000 and total assets of \$300,000. The firm 's sales are \$900,000. The firm 's fixed asset turnover is…

• 1042 Words
• 5 Pages
Satisfactory Essays
• Satisfactory Essays

B. The total assets of Laven company are \$176,600 and its stockholders equity is \$84,900. What is the amount of its total liabilities?…

• 995 Words
• 5 Pages
Satisfactory Essays
• Satisfactory Essays

c) What will the value per share be 3 years from now? (5 pts) Solution:…

• 1154 Words
• 5 Pages
Satisfactory Essays
• Good Essays

b. A new common stock issue that paid a \$1.81 dividend last year. The firm’s dividends are expected to continue to grow at 7.2% per year forever. The price of the firm’s common stock is now \$27.28…

• 2436 Words
• 10 Pages
Good Essays
• Good Essays

9.4 Abacus Corp. will pay dividends of \$2.25, \$2.95 and \$3.15 for the next three years. After three years, the firm will grow at a constant rate of 4 percent. If the required rate of return is 14.5 percent, what is the current value of the stock?…

• 1228 Words
• 5 Pages
Good Essays
• Powerful Essays

is 1.5%, and the market risk premium is 5.0%. (a) What is next year’s projected dividend?…

• 1689 Words
• 16 Pages
Powerful Essays
• Satisfactory Essays

Vps = Dps/Rps Vps = \$5/\$50 = 10% 7-5 Non-constant Growth Valuation A company currently pays a dividend of \$2 per share (D0 = \$2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk- free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?…

• 668 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

2. Holden Bicycles has 1,000 shares outstanding each with a par value of \$0.10 each. If they are sold to shareholders at \$19 each, what would the capital surplus be? \$18,900…

• 889 Words
• 4 Pages
Satisfactory Essays
• Satisfactory Essays

The proceeds of the sale are \$89.125 million. This would increase stockholder’s equity and assets by the same amount. The company uses \$84.5 million of…

• 660 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

components of stockholders’ equity and outstanding shares. Problem 2 Arnold Corporation has been authorized to issue 40,000 shares of \$100 par value, 8%,…

• 2191 Words
• 11 Pages
Satisfactory Essays