ASSIGNMENT 2MGF 301Corporation FinanceSpring 2009DUE: Tuesday, February 17th at 3:00pm in Jacobs 365You 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 Digital Dropbox on UBLearns before the time it is due. All electronic submissions must be to the Digital Dropbox (go to Control Panel, Digital Dropbox and hit “Send file”). Note: If you use Digital Dropbox, please follow all the Digital Dropbox rules (see Syllabus).________________________________________________________________________________________________________Answer all of the following questions. For each answer, show your work.1. Common Products has issued its $.01 par value stock in three separate financing transactions. First, ten years ago, the founder of the company purchased 1,000,000 sharesof stock for $250,000. Second, five years ago, the company sold 800,000 shares to a venture capitalist for $1,500,000. Third, the company went public last year by issuing 2,000,000 shares of stock to the public for $13 per share. Use this information to fill in the following table:Common shares (par value) ____________________Additional paid-in capital ____________________Retained Earnings ____________________Net Equity $30,500,0002. A $1,000 face value bond of Acme Inc. pays an annual coupon, carries a coupon rate of 7.25%, has 31 years to maturity, and sells at a yield to maturity of 6.45%.(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 increases to 8%?3. A 20 year maturity bond with a coupon rate of 6.25% 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 bonds are selling at 92.23 (i.e., the price is $922.30 for the $1,000 bond). There are 9 years remaining until maturity on the bonds and the yield to maturity is 8.75%. If the bond pays interest quarterly, find the coupon rate. (Note: express your answer as an annual percentage).5. Below are the data for two stocks, A and B: Stock A Stock BReturn on Equity 15% 13%Discount Rate 11% 10%Expected Earnings per share (time 1) $1.50 $2.10Expected Dividends per share (time 1) $ .60 $.70a. 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. Can you tell which company has a higher market value? 6. You have forecast that United Sports will pay a dividend of $1.30 next year (in year 1), $1.60 the next year (in time 2) and $2 three years from now (in year 3). For dividendsbeyond three years, you assume they will increase at 4% per year from the prior year. If the discount rate is 13%, calculate a fair price for the stock of United Sports,
View Full Document
Unlocking...