# UB MGF 401 - MGF301_Assignment_2_-_Spring_2011(1) (2 pages)

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## MGF301_Assignment_2_-_Spring_2011(1)

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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 Spring 2011 DUE Tuesday February 22nd at noon 12 00pm in Jacobs 365 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 the Assignments section of UBLearns Note If you use Electronic submission please follow all the rules for UBLearns Assignment submissions in the Syllabus Answer all of the following questions For each answer show your work 1 Common Products has issued its 001 par value stock in two separate financing transactions Transaction 1 ten years ago the founder of the company purchased 1 000 000 shares of stock for 200 000 Transaction 2 last year the company went public last year by issuing 4 000 000 shares of stock to the public for 10 million Use this information to fill in the following table Common shares par value Additional paid in capital Retained Earnings Net Equity 12 000 000 2 A 1 000 face value bond of Acme Inc pays an annual coupon carries a coupon rate of 6 5 has 11 years to maturity and sells at a yield to maturity of 5 75 a What interest payments do bondholders receive each year b At what price does the bond sell c What is the bond price if the yield to maturity rises to 8 3 A 30 year maturity bond with a coupon rate of 6 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 92 i e the price is 920 for the 1 000 bond There are 13 years remaining until maturity on the bonds and the yield to maturity is 7 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 11 percent Return on equity Earnings per share Dividends per share Stock A Stock B 16 1 50 50 13 2 50 80 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 50 next year in year 1 and 1 two years from now in year 2 For dividends beyond two years you assume they will increase at 6 per year from the prior year If the discount rate is 10 calculate a fair price for the stock of United Sports Inc

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