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1)Richards bottling co

Finance

1)Richards bottling co. paid a dividend of 2 last year. They are expected to pay 2.15 this year. This rate of growth is expected to continue forever. Shareholders need to earn 14. what's the fair price?

2)

  1. Was 10-year Treasury bond called Treasury Bill, Note, or Bond?
  2. What was the term ... that indicates the situation in which the yield of Treasury bonds sharply decreases because U.S. Treasury bonds are the safest assets?
  3. What is the meaning of finance? Is it not a gamble to earn more money using some seed money?

3)The Seattle Corporation has been presented with an investment opportunity which will yield end of year cash flows of $20,000 per year in Years 1 through 4, $25,000 per year in Years 5 through 9, and $30,000 in Year10. This investment will cost the firm $150,000 today, and the firm's required rate of return is 10 per cent. What is the NPV for this investment? Do you think Seattle should implement this investment and why?  

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1)

Dividend (D1) = 2.15

Ke = 14% or 0.14

Growth rate = 2.15 - 2 / 2 = 7.5%

Fair price of share = D1 / Ke - G

= 2.15 / 0.14 - 0.075

= 2.15 / 0.065

= 33.07

2)

Was 10-year Treasury bond called Treasury Bill, Note, or Bond?
Treasury Notes
Treasury bills issued , for a period of less than one year.
Treasury Notes are issued to run   2,3,5,7 or 10 years
Treasury Bonds are issued with terms running over 30 years.
 
What was the term ... that indicates the situation in which the yield of Treasury bonds sharply decreases because U.S. Treasury bonds are the safest assets?
Investors' wary perception about the general economy, leads them to take less risk & hence go in for more government securities, thus pushes up prices which lowers the treasury yields.
 
 
What is the meaning of finance? Is it not a gamble to earn more money using some seed money?
Financing is structuring(composition) the capital structure of any business---in start-up stage or a grown one, for further expansion--- or even for working capital loans.
Sometimes, the financing party participates in the ownership of the business. More often , the latter lends money for earning interest income , for lending the money for usage, within the fixed time-frame.
It ultimately depens on the agreement reached between the lender & the borrower. If done in a transparent & genuine manner, the lender should be able to assess, the purpose for which his money is sought after, how it is going to be utilised, under what terms of return for him(interest on loans or dividends from sahres), time with which it is going to be returned(if debt), etc.
Earning money , by doing business , is not a gamble--but a well thought-out venture ,backed professional exepertise----small such ventures go to make an eocnomy of a country --- which even banks & the government are encouraging to set-up ---with loans or industrial parks---- giving so many concessions , etc.
So, financing shoild not be seen as akin to gamble ---where the probability of the outcome is very very uncertain----but as a means of investing the affordable surplus , to earn money for self as well as helping those with all other empowerments, except money, to do their bit to uplift the economy.

 

3)

You need to use a Financial calculator to solve this problem. You can download it.

Press CF Button, CFo = -150,000 (This is the Initial Outflow)

Press Down arrow key, CO1 = 20,000 (Inflow from project after end of year 1 to 4)

FO1= 4(As the cashflow is for 4 years)

Like this fill CO2=25,000 , fO2= 5 (The cashflow is for 5 years)

CO3= 30,000 (10th year cashflow)

Press NPV Button, I=10 (The required return is 10%)

Press Down arrow key, press CPT, NPV = -10,307.433

As the NPV is negative, the project shouldn't be accepted. The acceptance of the project will cause erosion of the capital as there will be net outflow from the project instead of Inflow.