Distribution Model

The Big Corporation expects next year’s net income to be $20 million. The firm’s debt ratio is currently 30%. Big has $18 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Big’s dividend payout ratio be next year? After a 3-for-2 stock split, the Pittsburgh Company paid a dividend of $1.50 per new share, which represents an 8% increase over last year’s pre-split dividend. What was last year’s dividend per share?

Stock Return

A stock’s return has the following distribution: Demand for the Company’s Products Probability of This Demand Occurring Rate of Return if This Demand Occurs Weak 0.05 (40%) Below average 0.25 (4%) Average 0.40 20% Above average 0.25 35% Strong 0.05 55% 1.00 What is the stock’s expected return? What is the stock’s standard deviation? What is the stock’s coefficient of variation?

Proposed acquisition of equipment

The Progresso Company is evaluating the proposed acquisition of a new milling machine. The machine’s price is $100,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $45,000. The machine would require an increase in net working capital (inventory) of $10,000. The machine would have no effect on revenues, but it is expected to save the firm $50,000 per year in before-tax operating costs, mainly labor. Progresso’s marginal tax rate is 40%. What is the net cost of the machine for capital budgeting purposes? (That is, what is the Year 0 net cash flow?) What is the net operating cash flow in Year 1? What is the net operating cash flow in Ye... click for more

Bonds

The Tivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (book = market) $5,000,000 EBIT $750,000 Cost of equity, rs 10% Stock price, P0 $10 Shares outstanding, n0 500,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt, based on market values, its cost of equity, rs, will increase to 11% to reflect the increased risk. Bonds can be sold at a cost, rd, of 6%. Tivoli is a no-growth firm. Hence, all its earnings are paid out as dividends, and earnings are expectationally constant over time. What w... click for more

How to calculate the points to plot in a normal distribution curve

Assume we have a mean or Xbar value of a data set = 1530; let's also assume we have a std dev for the data set = 19 This problem asks us to calculate and plot what the normal distribution curve for the whole data set would look like. My understanding is that this is really a probability curve that for each x-value, its corresponding y-value on the curve plot can be defined by the equation: P(x) = (1/stddev(2pie)^.5)^exp-(x-Xbar)^2/2(stddev)^2 I am confused specifically be the sign convention in the exponent part of this calculation!!! So....if I was specifically trying to determine the corresponding probability of x1 = 1500; then x2 = 1505, how would you calculate the correspo... click for more