Newburn Entertainment\'s stock i g expected to pay a year-end dividend of row at
ID: 2481126 • Letter: N
Question
Newburn Entertainment's stock i g expected to pay a year-end dividend of row at a 18 $3.00 a share (D -$3.00)The stock's dividend ia expected to grOw at constant rate of st a year. 1t the required rate of return ontne is 10 percent, what is the stock' required rate of return on the stock e expected price five years from now? a. $60.00 b. $76.58 C. $96.63 d. $72.11 e. $68.96 19. Your portfolio consists of $50,000 invested in stock x and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coetficient between them, F is zero. Which of the following statements best describes the characteristics of your portfolio a. Your portfolio has a beta equal to 1.6 and its expected return is b. Your portfolio has a standard deviation ot 301 and ita expected c. Your portfolio has a standard deviation greater than 30 and its d. Your portfolio has a standard deviation less than 30t and a beta e. Your portfolio has a beta greater than 1.6 and an expected return less than 15t return is 15%. beta is less than 1.6. equal to 1.6. greater than 15% 20. If the CEO of a firm were filling out a fitness report on a division manager (i.e.. grading" the manager), which of the following situations would be likely to cause the manager to get a BETTER GRADE? In all cases, assume that other things are held constant. a. The division's total assets turnover ratio is below the average for b. The division's Dso (days' sales outstanding) is 40, whereas the c. The division's inventory turnover is 8, whereas the average for d. The division's debt ratio is above the average for other firms in the e. The division's current ratio is below the average of other firms in other firms in the industry average for competitors is 30 competitors is industry. the industryExplanation / Answer
Answer
Answer 18
Year
Dividend
1
3
2
3*1.05
3.15
3
3.15*1.05
3.3075
4
3.3075*1.05
3.472875
5
3.472875*1.05
3.64651875
Figures in $
Particulars
Amount
Dividend at end of year 6
a
3.83
(3.64651875*1.05)
Required rate of return -growth rate
b
0.05
(0.1-0.05)
Market price end of year 5 (a/b)
76.58
Answer : b. $ 76.58
Answer 19
Answer : d. Your portfolio has a standard deviation less than 30% and a beta equal to 1.6
Answer 20
Answer : C. The division’s inventory turnover is 8, whereas the average for competitors is 6.
Answer 15
Answer :
Current market price = Dividend for next year / required return – growth rate
50 = 3 / required return – 0.06
Required return – 0.06 = 3/50
Required return – 0.06 = 0.06
Required return = 0.06 + 0.06
Required return = 0.12
Expected dividend yield = dividend for next year / current market price
= 3 / 50
= 6%
Answer : b. The stock’s expected dividend yield and growth rate are equal
Answer 16
Operating cash flow = (Sales – other operating costs –interest expenses) *(1 –tax rate) + Depreciation * Tax rate
= (60000 – 25000 – 8000) * (1-0.35) + (8000 * 0.35)
= (27000) * 0.65 + (2800)
=17550 + 2800
= $ 20350
Answer 17
Answer : e. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.
Year
Dividend
1
3
2
3*1.05
3.15
3
3.15*1.05
3.3075
4
3.3075*1.05
3.472875
5
3.472875*1.05
3.64651875