# UB MGF 401 - MGF301_Assignment_2_-_Fall_2012 (2 pages)

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## MGF301_Assignment_2_-_Fall_2012

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- Pages:
- 2
- School:
- University at Buffalo, The State University of New York
- Course:
- Mgf 401 - Financial Institutions

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ASSIGNMENT 2 MGF 301 Corporation Finance Fall 2012 DUE Tuesday October 9th at 1 30pm EST in Jacobs 365 Singapore Deadline Tuesday October 9th at 1 30am Singapore Time You may in a group of up to 4 on this Assignment Please indicate clearly on all submitted Assignments who the members of the group are Please note all assignments submitted with more than 4 group members will automatically receive a 0 grade No late assignments will be accepted You may hand in the assignment in person in Jacobs 365 put it under the door if no one is there or submit it by email to the link in UBLearns before the time it is due All electronic submissions must be to the link in UBLearns Note please follow all the Digital Submission rules see Syllabus Answer all of the following questions For each answer show your work to get full points stating the answer alone is not sufficient 1 Common Products has issued its 001 par value stock in two separate financing transactions Transaction 1 five years ago the founder of the company purchased 1 000 000 shares of stock for 250 000 Transaction 2 last year the company went public by issuing 10 000 000 shares of stock to the public for 12 million Use this information to fill in the following table Common shares par value Additional paid in capital Retained Earnings Net Equity 14 000 000 2 A 1 000 face value bond of Acme Inc pays an annual coupon and carries a coupon rate of 7 It is was a 30 year bond when issued and it has 17 years remaining to maturity If it currently has a yield to maturity of 6 25 a What interest payments do bondholders receive each year b What is the current bond price c What is the bond price if the yield to maturity rises to 8 3 A 10 year maturity bond with a coupon rate of 5 5 and face value of 1 000 makes semi annual coupon payments What is the bond s yield to maturity if the bond is selling for a 900 b 1 000 c 1 100 4 Large Industries annual bonds are selling at 103 i e the price is 1 030 for the 1 000 bond There are 12 years remaining until maturity on the bonds and the yield to maturity is 6 25 Find the coupon rate Note you may have to use a trial and error solution method 5 Below are the data for two stocks both of which have a discount rate of 10 percent Return on equity Earnings per share Dividends per share Stock A Stock B 13 1 00 35 15 2 20 1 30 a What are the dividend payout ratios for each firm b What are the expected dividend growth rates for each firm c What is the estimated stock price for each firm d Which stock has the higher market value of equity 6 You have forecast that United Sports Inc will pay a dividend of 40 next year in time 1 80 two years from now in time 2 and 1 10 three years from now in time 3 For dividends beyond three years you assume they will increase at 6 per year from the prior year If the discount rate is 11 calculate a fair price for the stock of United Sports Inc

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