Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN: 9781285867977
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 14, Problem 3P
a.
Summary Introduction
To identify: The earnings per share for the Firm C.
Introduction:
Earnings per Share: When the net income or profit earned during a specified period as a result of company’s business operations is reported on per share basis, and it is called as the earnings per share.
b.
Summary Introduction
To identify: The relative riskiness of each firm.
Introduction:
Risk analysis: The risk analysis is a financial method to analyze the riskiness of an investment or project.
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QUESTIONS:
1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6%
whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using
CAPM.
2) Compute the value of each investment based on your required rate of return and interpret
the results comparing with the market values.
3) Which investment would you select? Explain why using appropriate financial jargon
(language).
4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting
increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3?
5) AACSB Critical Thinking Questions:
A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and
the costs can be substantial. However, companies are not required to have their
bonds rated in the first place; doing so is strictly voluntary. Why do you think they do
it? (Textbook page: 198)
B) What are the difficulties in using the PE ratio to value stock?…
Using the stock price data for any two companies provided below carry out the following tasks:
1.Compute, for each asset:
i.Total Returns
ii.Expected returns
iii.standard deviation
iv.Correlation Coefficient
2.Construct the variance-covariance matrix
3.Construct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio.
4.Reconstruct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio.
5.Use Solver to determine optimal risky portfolio.
6.Create hypothetical portfolios (commencing from Weight A=0 and weight B=100)
7.Calculate Expected return and Standard Deviation for all the above combinations
8.Graph the efficient frontier
9.Graph the optimal portfolio
10.Assuming that the investors prefers lower level of risk than what a portfolio of risky assets offer, introduce a risk free asset in the portfolio with a return of 3%
11.Using hypothetical weights (A= Portfolio of Risky Assets, B= 1 Risk Free…
Consider the following balance sheet of WAZ:
Assets
(Κ000)
Duration
Liabilities
(K'000)
Duration
abaw
Variable-rate
Money market
1,600
4.1
2,000
1.3
mortgages
deposits
Fixed-rate mortgages
1,400
8.1
Savings deposits
3,500
2.3
Variable-rate CDs
Commercial loans
5,000
3.2
1,000
1.2
(>1 year)
Physical capital
2,000
Equity
3,500
Total
10,000
Total
10,000
Chapter 14 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 14 - Changes in sales cause changes in profits. Would...Ch. 14 - Would each of the following increase, decrease, or...Ch. 14 - Discuss the following statement: All else equal,...Ch. 14 - Prob. 4QCh. 14 - Prob. 5QCh. 14 - Why do public utilities generally use different...Ch. 14 - Why is EBIT generally considered independent of...Ch. 14 - Is the dept level that maximizes a firms expected...Ch. 14 - If a firm goes from zero dept to successively...Ch. 14 - Prob. 10Q
Ch. 14 - A firm is about to double its assets to serve its...Ch. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3PCh. 14 - UNLEVERED BETA Harley Motors has 10 million in...Ch. 14 - FINANCIAL LEVERAGE EFFECTS Firms HL and LL are...Ch. 14 - BREAK-EVEN ANALYSIS The Weaver Watch Company sells...Ch. 14 - Prob. 7PCh. 14 - HAMADA EQUATION Cyclone Software Co. is trying to...Ch. 14 - RECAPITALIZATION Tapley Inc. currently has total...Ch. 14 - BREAKEVEN AND OPERATING LEVERAGE a. Given the...Ch. 14 - RECAPITALIZATION Currently, Bloom Flowers Inc. has...Ch. 14 - BREAKEVEN AND LEVERAGE Wingler Communications...Ch. 14 - FINANCING ALTERNATIVES The Severn Company plans to...Ch. 14 - WACC AND OPTIMAL CAPITAL STRUCTURE Elliott...Ch. 14 - OPTIMAL CAPITAL STRUCTURE Assume that you have...Ch. 14 - Prob. 1TCLCh. 14 - Exploring the Capital Structures for Four...
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- In the equation for expected return from the CAPM, the only input specific to the firm in question is...O. the risk-free rate.O. the market risk premium.O. beta.O. all of the above.arrow_forwardKINDLY ANSWER PART 5,6.and 7 Using the stock price data for any two companies provided below carry out the following tasks: 1.Compute, for each asset: i.Total Returns ii.Expected returns iii.standard deviation iv.Correlation Coefficient 2.Construct the variance-covariance matrix 3.Construct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 4.Reconstruct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 5.Use Solver to determine optimal risky portfolio. 6.Create hypothetical portfolios (commencing from Weight A=0 and weight B=100) 7.Calculate Expected return and Standard Deviation for all the above combinations 8.Graph the efficient frontier 9.Graph the optimal portfolio 10.Assuming that the investors prefers lower level of risk than what a portfolio of risky assets offer, introduce a risk free asset in the portfolio with a return of 3% 11.Using hypothetical weights (A= Portfolio of Risky…arrow_forwardGiven the following information, calculate the expected value for Firm C's EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and σA = $3.63; E(EPSB) = $4.20, and σB = $2.94. Do not round intermediate calculations. Round your answer to the nearest cent. Probability 0.1 0.2 0.4 0.2 0.1 Firm A: EPSA ($1.61) $1.80 $5.10 $8.40 $11.81 Firm B: EPSB (1.20) 1.30 4.20 7.10 9.60 Firm C: EPSC (2.59) 1.35 5.10 8.85 12.79 E(EPSC): $ You are given that σc = $4.12. Discuss the relative riskiness of the three firms' earnings using their respective coefficients of variation. Do not round intermediate calculations. Round your answers to two decimal places. CV A B C The most risky firm is .arrow_forward
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