Ask Question, Ask an Expert


Ask Basic Finance Expert

Problems are to be worked in order. Remember to show any assumptions that you used.  All work is to be completed individually. You can use Excel, a financial calculator or solve the problems by hand.

1. Starbucks has one debt issue outstanding. Debt matures on August 15, 2017, and has a 6.25% coupon. Coupons are paid semi annually. Bond is priced to yield 1.61% compound semi annually. Estimate price of the bond on February 15, 2013, immediately after that coupon is paid.

2. You buy a SML Bond for $980. Bond has a face value of $1000 and an annual coupon rate of 8%.  There are 5 years left until maturity.

a. Find the yield to maturity on the bond?

b. At the end of two years, price has risen to $1050.  What is the yield to maturity based on new price?

c. As of a special delivery by the stork, you decide to sell bond at the end of year 2 for $1050.  What was your return?  Why does this vary from the yield to maturity? Suppose you do get the first two coupon payments.

3. You have following information for Starbucks: Current EPS is $1.79. The present dividend is $.68 per share. The return on equity is 24%.  The present price is $49.22. 

a. Use dividend discount model (also known as constant growth model) to compute the return for Starbucks.

b. Suppose your answer to part a. is correct, compute the present value of the growth opportunities (PVGO).

4. Tank Industries Washers expects to pay following dividends over the next 4 years: $2.50, $3.20, $4.75 and $5.20 respectively (starting at time 1).

a. After year 4, the firm expects a constant growth rate of 3%.  If investors need 11%, what is the present share price?

b. The CEO, Major Payne, has identified numerous new investment opportunities.  He is trying to convince investors to back his strategy.  He will require to keep the dividends at $2.50 each year for the next four years. After year 4, the growth rate will be 10% forever.  Based on increased risk, the other investors increase the required return to 15%.  Should they back his strategy? Hint: Re-estimate the present price based on the new cash flows.

5. BAC is considering an issue of preferred stock.  The dividends are 8.12% of the $25 par value. 

a. If the present price is $26.25 per share, find the return on the preferred stock?

b. Assume the preferred stock would mature in 20 years.  If price is $26.25 per share, what is the return on the preferred stock? HINT: This is just like a bond, but face value is 25.  For a problem, you could suppose dividends are annual.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92016

Have any Question? 

Related Questions in Basic Finance

Consider a borrowing arrangement in which the annual

Consider a borrowing arrangement in which the annual percentage rate (APR) is 8%. a. Under what conditions does the effective annual rate of interest (EAR) differ from the APR of 8%? b. As the frequency of compounding in ...

Introduction to corporate finance case work sources of

Introduction to Corporate Finance Case Work: Sources of Finance The task is to analyze available sources of finance for a selected SME entity. (1 SME company) What sources of finance are available for the selected entity ...

A company wants to enter into a commitment to initiate a

A company wants to enter into a commitment to initiate a swap in 90 days. The swap would consist of four payments 90 days apart with the underlying being LIBOR. Use the term structure of LIBOR as given below to solve for ...

1 compare and contrast economic market and relevancy value2

1. Compare and contrast economic, market, and relevancy value. 2. Illustrate the differences in product/service creation, presentation, and positioning. 3. Explain the folIowing statement: "The methodology is systems ana ...

Suppose someone offers you the following gamble you pay 7

Suppose someone offers you the following gamble: You pay $7 and toss a coin. If the coin comes up heads, he pays you $10, and if tails comes up, he pays you $5. You in turn get the idea of offering another person a coin ...

1 define the following termsa mergerb consolidationc

1. Define the following terms: a. Merger b. Consolidation c. Holding company 2. Describe some of the measures used by companies to discourage unfriendly takeover attempts. 3. What is the difference between an asset purch ...

Punxsutawney taxidermy inc pti operates a chain of

Punxsutawney Taxidermy Inc. (PTI) operates a chain of taxidermy shops across the Midwest, with a handful of locations in the South. A rival firm, Heads Up Corp., has a few Midwestern locations, but most of its shops are ...

1 steps in buying a home what is your first task when

1. Steps in Buying a Home. What is your first task when considering buying a home? Why is this step important? How can a real estate broker help you? 2. Purchasing a Home. What are the two financial components you must c ...

1 what is program evaluation why do program evaluators rely

1. What is program evaluation? Why do program evaluators rely heavily on quasiexperimental designs in their work? 2. What were some of Donald Campbell contributions to behavioral research?

During a congressional committee hearing at which goldman

During a Congressional Committee hearing at which Goldman Sachs CEO Lloyd Blankfein testified, Senator David Pryor of Arkansas asked Blankfein, "Why would clients believe in Goldman Sachs?" Blankfein replied that Goldman ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen