1) Last year Omar Industries had $900 million of sales and $450 million of fixed assets, so its FA/Sales ratio was 50%.

Question

1) Last year Omar Industries had $900 million of sales and $450 million of fixed assets, so its FA/Sales ratio was 50%. However, its fixed assets were used at only 65% of capacity. If the company had been able to sell off enough of its fixed assets at book value, so that it was operating at full capacity, with sales held constant at $900 million, how much cash (in millions) would it have generated? What steps are needed to arrive at the final answer? 2) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 12.5%, and the constant growth rate is g = 4.0%. What is the current stock price? Select the correct answer. a. $18.35b. $19.11c. $19.49d. $17.97e. $18.73 3) If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $24, what is the stock's expected dividend yield for the coming year? Select the correct answer. a. 5.73%b. 6.01%c. 6.29%d. 6.57%e. 5.45%

Help In Homework · Accepted Answer

2) Computation of Current Stock Price: Current Stock Price = Next Year Dividend / (Required Rate of Return - Growth Rate) = $1.50*(1+4%)/(12.5%-4%) = $1.56/8.5% Current Stock Price = $18.35 So, the correct option is A "$18.35". 3) Computation of Expected Dividend Yield: Expected Dividend Yield = Expected Dividend for Next Year / Current Stock Price = $1.25*(1+4.7%)/$24 = $1.30875/$24 Expected Dividend Yield = 5.45%

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1) Last year Omar Industries had $900 million of sales and $450 million of fixed assets, so its FA/Sales ratio was 50%

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