FIN 419 Week 4 Team Assignment Problem Sets
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Complete the following problem sets in Financial Management using Microsoft® Excel®:
• Chapter 7 : 5, 15
• Chapter 9 : 10
• Chapter 11 : 12
• Chapter 16: 9, 10
Chapter 7
5. King Waterbeds has an annual cash dividend policy that raises the dividend each year
by 4%. Last year’s dividend was $0.40 per share. What is the price of this stock if
a. an investor wants a 5% return?
b. an investor wants an 8% return?
c. an investor wants a 10% return?
d. an investor wants a 13% return?
e. an investor wants a 20% return?
15. Using Yahoo! Finance (http://finance.yahoo.com/) and ticker symbol PEP, find
PepsiCo’s historical dividend payment and current price. Historical dividends are available in the historical price section. Use these payments to find the annual
dividend growth rate. (If you have a quarterly pattern be sure to annualize this
quarterly growth rate.) Now, find the required rate of return for this stock, assuming
that the future dividend growth rate will remain the same and the company has an
infinite horizon. Does this return seem reasonable for PepsiCo?
Chapter 9 – Q10
10. Net present value. Lepton Industries has four potential projects, all with an initial cost of $1,500,000. The capital budget for the year will allow Lepton to accept only one of the four projects. Given the discount rates and the future cash flows of each project, determine which project Lepton should accept.
ANSWER:
Chapter 11 – Q12
12. Book value versus market value components. The CFO of DMI is trying to determine the company’s WACC. Brad, a promising MBA, says that the company should use book value to assign the components percentage for the WACC. Angela, a long-time employee and experienced financial analyst, says the company should use market value to assign the components. The after-tax cost of debt is at 7%, the cost of preferred stock is at 11%, and the cost of equity is at 14%. Calculate the WACC using both the book value and market value approaches with the following information. Which do you think is better? Why?
Chapter 16
9. Finding the WACC. Monica is the CFO of Cooking for Friends (CFF) and uses the pecking order hypothesis (POH) philosophy when she raises capital for company projects. Currently, she can borrow up to $600,000 from her bank at a rate of 8.5%, float a bond for $1,100,000 at a rate of 9.25%, or issue additional stock for $1,300,000 at a cost of 17%. What is the WACC for CFF if Monica chooses to invest: a. $1,000,000 in new projects? b. $2,000,000 in new projects? c. $3,000,000 in new projects?
10. Finding the WACC. Chandler has been hired by Cooking for Friends to raise capital for the company. Chandler increases the funding available from the bank to $900,000, but with a new rate of 8.75%. Using the data in Problem 9, determine what the new weighted average cost of capital is for borrowing $1,000,000, $2,000,000, or $3,000,000
Prepare the DuPont analysis for each of the two companies you researched in Week 2.
Develop a 350-word analysis of the following:
• Compare the two company findings.
• Analyze the research and calculations to determine in which company you would invest.
Format the assignment consistent with APA guidelines.
Click the Assignment Files tab to submit your assignment.