Financial Analysis

1. As of December 1999, Amazon.com had never paid a dividend and the market value of its stock was $37 billion. Does this invalidate the dividend discount model? Why or why not? 2. Which capital budgeting technique is consistent with maximizing shareholder wealth and why? 3. WACC is also referred to by 3 other names. What are they? 4. Discuss the relationship between bond prices and interest rates. What impact do changing interest rates have on the price of long-term bonds versus short-term bonds?

During January the following selected transactions occurred...

P2-1A On January 1, 2002, the ledger of Van Manen Company contains the following liability accounts. During January the following selected transactions occurred. Accounts Payable $52,000 Sales Taxes Payable 7,500 Unearned Service Revenue 16,000 Jan. 5 Sold merchandise for cash totaling $16,632, which includes 8% sales taxes. 12 Provided services for customers who had made advance payments of $9,000. (Credit Service Revenue) 14 Paid state revenue department for sales taxes collected in December 2001 ($7,500). 20 Sold 500 units of a new product on credit at $50 per unit, plus 8% sales tax. 21 Borrowed $18,000 from Castle Bank on a 3-month, 10%, $18,000 note. 25 Sold merchan... click for more

The opportunity cost of capital is 8 percent.

4. Smith Devices is contemplating the purchase of National Widget Company. The values of the two companies as separate entities are $20 million and $10 million, respectively. Smith estimates that by combining the two companies it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Smith is willing to pay $14 million cash for National. The opportunity cost of capital is 8 percent. a. What is the gain from the merger? ____________ b. What is the cost of the cash offer? ____________ c. What is the NPV of the acquisition under the cash offer? _______________

spot/forward rates/covered interest rate parity

Doug Wyatt is a currency trader for Global Currency Exchange Inc. Wyatt has compiled the following information concerning the U.S. dollar ($) / Australian dollar (AUD) exchange rate. - Spot bid rate: $0.745 - Spot ask rate: $0.749 - 3-month forward bid rate: $0.752 - 3-month forward ask rate: $0.754 Which of the following statements concerning the currencies is CORRECT? A) The AUD is selling at a forward discount of 4.83%. B) The AUD is selling at a forward premium of 3.21%. C) The USD is selling at a forward premium of 2.82%. D) The AUD is selling at a forward premium of 4.83% Which spot and forward rate do I have to use ?? Average ?? -------------... click for more

What is the WACC?

Smith and Jones Widget company has total capital, consisting of long-term debt and common equity of $80 million. Thirty-two million of total capital is in the form of long-term debt, which carries a cost of 12 percent. The company's equity carries a cost of 19.50 percent. If the company's tax rate is 38 percent, what is the WACC?