Question
1
|
Day |
1 |
2 |
3 |
4 |
|
|
Advances |
1023 |
12 45 |
2460 |
2 50 9 |
|
|
Declines |
2334 |
20 04 |
1178 |
9 80 |
|
|
Volume Advancing(m) |
214349 |
225066 |
666012 |
679332 |
|
|
Volume Declining(m) |
616678 |
555010 |
198058 |
172311 |
|
|
Yield on Top Rated bond |
6.80% |
6.70% |
6.60% |
||
|
Yield on Intermediate-grade bond |
7.40% |
7. 50% |
7.60% |
What is the trin ratio for day 1?(sample answer: 1.
35
)
What is the trin ratio for day 4? (sample answer: 1.35)
Does the change in the trin ratio from day 1 to day 4 show a bullish or bearish trend? (sample answer: bullish or bearish)
Question 2
As a financial analyst at Wells Fargo, you are analyzing how the change in yield impacts the bond price. A bond has a duration of 11 years, a yield of
10%
, a convexity of 140, and a market price of $1,000. Suppose the market yield increases by 60 basis points.
What is the percentage change in the bond’s price by the duration only formula? (sample answer: 2.25% or -2.25%)
What is the bond price after the yield change predicted by the duration only formula? (sample answer: $1050.65)
What is the percentage change in the bond’s price predicted by the duration with convexity formula? (sample answer: 2.25% or -2.25%)
What is the bond price after the yield change predicted by the duration with convexity formula? (sample answer: $1050.65)
Question 3
You have collected the following cash flow data of Herman Miller Office Furniture for the year ended December 31, 2019
|
Sale of a used Bus |
45450 |
|
Cash dividend |
90000 |
|
Purchase of land |
28280 |
|
Interest payment on debt |
26 260 |
|
Cash Payment on Salary |
90900 |
|
Purchase of a New Drilling machine |
76760 |
|
Purchase of New Wood working machine |
60000 |
|
Repurchase of stock |
7 500 0 |
|
Cash payments to Vendor |
161600 |
|
Cash collections from customers |
393900 |
|
Cash at the beginning of the year |
400 000 |
Please answer the following questions:
a . What is the net cash provided by or used in operating activities?(sample answer: -$135,000 or $135,000)
b . What is the net cash provided by or used in investing activities? (sample answer: -$135,000 or $135,000)
c . What is the net cash provided by or used in financing activities? (sample answer: -$135,000 or $135,000)
d . What is the cash at the end of the year? (sample answer: -$135,000 or $135,000)
Question 4
You are a financial analyst at Bank of America and you have collected following information for Lotus Tech Company. The company has beta of 1.5 and a ROE of 20%. The dividend payout ratio is 50%. Last twelve month earnings were $4 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 11%, and T-bills currently offer a
8%
return.
(keep two decimal places please.)
a. What is the required rate of return of the stock? (input format: 15.32%)
b. What is the growth rate of the stock? (input format: 15.32%)
c. What is the intrinsic value of the stock? (input format: $15.32)
d. What is PVGO of the stock? (input format: $15.32)
e. Suppose your research convinces you that company will announce momentarily that it will immediately change its dividend payout ratio to 75%. Find the intrinsic value of the stock. (input format: $15.32)
QUESTION 5
Suppose you are an analyst in pharmaceutical industry for Bank of America. You collect the following data to estimate the expected growth rate of dividends and use it as an input for valuing an oil company’s common stock.
|
Return on Assets |
10% |
|
Profit Margin |
8% |
|
Debt/Equity |
|
|
Payout Ratio |
50% |
a. The leverage ratio of this company is (sample answer: 3.50)
b. The company’s expected growth rate is (sample answer: 25.60%)
QUESTION 6
The following table lists the Income statement and Balance sheet for First American Furniture Company
|
I |
2020 |
2021 |
||
|
Revenue |
516 |
6 30 |
||
|
Depreciation |
30 | 35 | ||
|
Other operating costs |
400 |
480 |
||
|
Income before taxes |
86 |
115 |
||
|
Taxes |
44 |
|||
|
Net income |
56 |
71 |
||
|
Dividends |
20 | 26 | ||
|
Earnings per share |
0.56 |
0.71 |
||
|
Dividend per share |
0.2 |
0.26 |
||
|
Common shares outstanding (millions) |
100 |
|
Balance Sheet |
||||
|
Current assets |
350 |
420 |
||
|
Net property, plant, and equipment |
500 |
520 |
||
|
Total assets |
850 |
940 |
||
|
Current liabilities |
130 |
150 |
||
|
Long-term debt |
50 | 80 | ||
|
Total liabilities |
180 |
230 |
||
|
Shareholders’ equity |
670 |
710 |
||
|
Total liabilities and equity |
||||
|
Capital expenditures |
45 | |||
|
Net Working Capital |
220 |
270 |
You are a financial analyst at RBC. Using the data above, you want to determine the value of First American Bank’s stock using the Free Cash Flow to Equity (FCFE) model. You believe that the company’s FCFE will grow at 40% for three years and 10% thereafter. Capital expenditures, depreciation, working capital, and net debt are all expected to increase proportionately with FCFE. The required rate of return on equity is 16%.
a. Calculate the amount of FCFE per share for the year 2021.(sample answer: $5.15)
b. Calculate Projected 2024 terminal value per share based on constant growth of 10% (sample answer: $25.15)
c. Calculate the current value of a share of the stock based on the two-stage FCFE model. (sample answer: $25.15)
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