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Financial Analysis of returns for companies:

Hamptons Inc. successful nursery, is allowing for numerous expansion projects. All of alternatives promise to create the acceptable return. Data on four possible projects follow.

Project  Expected Return  Range   Standard Deviation
 A         12%                   4%            2.9%
 B         12.5%                5%            3.2%
 C         13%                   6%            3.5%
 D         12.8%                4.5%         3.0%

i) Which project is slightest risky, judging on basis of range?

ii) Which project has lowest standard deviation? Describe why standard deviation may not be the completely suitable measure of risks for purposes of comparison.

iii) Compute coefficient of variation for each project. Which project do you believe Greengages owners should choose? Describe why in detail?

2) Johnson Company has compiled the information shown in the following table.

Source of capital         Book Value    Market Value      After-tax cost
Long Term Debt           4,000,000     3,840,000           6.0%
Preferred Stock            40,000          60,000                13%
Common stock equity  1,060,000      3,000,000            17%
Totals                         5,100,000      6,900,000

i) Compute the weighted cost average by using book value weights.

ii) Compute weighted cost average of capital by using market value weights?

iii) Compare the answers got in part A and B and describe the differences.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914858

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