Questions from Corporate Finance

Q: Look back to the numerical example graphed in Figure 1A.

Look back to the numerical example graphed in Figure 1A.1. Suppose the interest rate is 20%. What would the ant (A) and grasshopper (G) do if they both start with $100,000? Would they invest in their...

Q: Why might one expect managers to act in shareholders’ interests?

Why might one expect managers to act in shareholders’ interests? Give some reasons.

Q: Mexican Motors’ market cap is 200 billion pesos. Next year’s free

Mexican Motors’ market cap is 200 billion pesos. Next year’s free cash flow is 8.5 billion pesos. Security analysts are forecasting that free cash flow will grow by 7.5% per year for the next five yea...

Q: Phoenix Corp. faltered in the recent recession but is recovering.

Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2016 are as follows. Phoenix’s recovery will be complete by 2021...

Q: The constant-growth DCF formula: P0 = DIV1 /

The constant-growth DCF formula: P0 = DIV1 /r − g is sometimes written as: P0 = ROE (1 − b) BVPS / r − b ROE where BVPS is book equity value per share, b is the plowback ratio, and ROE is the r...

Q: Portfolio managers are frequently paid a proportion of the funds under management

Portfolio managers are frequently paid a proportion of the funds under management. Suppose you manage a $100 million equity portfolio offering a dividend yield (DIV1/P0) of 5%. Dividends and portfolio...

Q: Company X is expected to pay an end-of-year

Company X is expected to pay an end-of-year dividend of $5 a share. After the dividend its stock is expected to sell at $110. If the market capitalization rate is 8%, what is the current stock price?...

Q: Company Y does not plow back any earnings and is expected to

Company Y does not plow back any earnings and is expected to produce a level dividend stream of $5 a share. If the current stock price is $40, what is the market capitalization rate?

Q: Company Z’s earnings and dividends per share are expected to grow indefinitely

Company Z’s earnings and dividends per share are expected to grow indefinitely by 5% a year. If next year’s dividend is $10 and the market capitalization rate is 8%, what is the current stock price?

Q: If company Z (see Problem 5) were to distribute all

If company Z (see Problem 5) were to distribute all its earnings, it could maintain a level dividend stream of $15 a share. How much is the market actually paying per share for growth opportunities?...