BUSI 320 Exam 3 Liberty University Complete Answer

BUSI 320 Exam 3 Liberty University Complete Answer

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Question

You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 10 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 15 years to maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Compute the price of the bonds based on semiannual analysis. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b. With 10 years to maturity, if yield to maturity goes down substantially to 8 percent, what will be the new price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Question

BioScience Inc. will pay a common stock dividend of $6.40 at the end of the year (D1). The required return on common stock (Ke) is 14 percent. The firm has a constant growth rate (g) of 5 percent.

Compute the current price of the stock (P0). (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question

Ecology Labs Inc. will pay a dividend of $5.30 per share in the next 12 months (D1). The required rate of return (Ke) is 19 percent and the constant growth rate is 8 percent. (Each question is independent of the others.)

a. Compute the price of Ecology Labs' common stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Assume Ke, the required rate of return, goes up to 23 percent. What will be the new price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Assume the growth rate (g) goes up to 13 percent. What will be the new price? Ke goes back to its original value of 19 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. Assume D1 is $7.00. What will be the new price? Assume Ke is at its original value of 19 percent and g goes back to its original value of 8 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question

Justin Cement Company has had the following pattern of earnings per share over the last five years:

The earnings per share have grown at a constant rate (on a rounded basis) and will continue to do so in the future. Dividends represent 40 percent of earnings.

a. Project earnings and dividends for the next year (20X6). (Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your answers to 2 decimal places.)

b. If the required rate of return (Ke) is 13 percent, what is the anticipated stock price (P0) at the beginning of 20X6? (Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your answer to 2 decimal places.)

Question

Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 5 percent over the next four years. The required rate of return is 12 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.