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Homework answers / question archive / 1)Alpha Industries is going to pay $

1)Alpha Industries is going to pay $

Finance

1)Alpha Industries is going to pay $.35, 5.50, and $.80 a share over the next three years, respectively. After that, the company has stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth today at a discount rate of 10 percent? (10 points)

2)The financial manager has three main tasks in maximizing the wealth of the stockholders. Which one of the following is FALSE? de Investment decision: the financial manager must weigh the costs and benefits of each investment or project. b. Corporate governance decision: the financial manager need to appoint a board of directors to set out the overall strategic direction while taking into account the interest of other stakeholders. CC Cash management decision: the financial manager must ensure that the firm has enough cash on hand to meet its obligations at each point in time Od Financing decision: the financial manager must decide whether to raise more money from new and existing owners by selling more shares or to borrow the money instead. e. None of the answers are correct.

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1)

Price os stock today= D1/(1+r)^1 + D2/(1+r)^2 + D3/(1+r)^3 + (D4/r)/(1+r)^3

= 0.35/(1+0.10) + 0.50/(1+0.10)^2 + 0.80/(1+0.10)^3 + (1.25/0.10)/(1+0.10)^3

= 0.35/(1.10) + 0.50/(1.10)^2 + 0.80/(1.10)^3 + (12.5)/(1.10)^3

= 0.3182 + 0.50 /1.21 + 0.80/1.3310 + 12.5/1.3310

= 0.3182 + 0.4132 + 0.6011 + 9.3914

= $10.72

2)

In the given case, Option b is false.

The three main tasks in maximizing wealth is as follow:

1. The financial manager has to take investment decision to evaluate the cost and benefit of each investment project,so that only those projects can be undertaken which provides desired rate of return to stockholders.

2. Second decision is Cash Management Decision, that is which part of earnings to be retained, and which part of earnings to be distributed to stockholders. If Return from retained earnings is higher than Cost of Equity, then it is better to retain it.

3. Third important decision is Financing Decision. It is necessary to ensure that there is appropriate mix of debt and equity to ensure that on the one hand entity can take benefit of leverage and on the other hand debt should not be so high that entity will not be able to repay it.

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