684 cp 25 Eso MEL Problems . aes ree aes eed: oooh bes x reece The minimum le:= payments are P2,000 per month (P24,000 per year) and Ao be discounted back tothe presen ata percent annual discount ate. The air value ofthe propery is P17S,000 Should the lease be recorded 36 ease oF an operating fase? 5 The Violeta Corporation has a bond outstanding with & P90 annual interes ‘payment, a market pice of P820, and a matuety ate in ive years Find: (3) the oupon rae, (b) the cutentete, snd) the appronimut yal oratory. Problem 2 ‘Corporation plans 0 lease 8 P900,000 asset to the OPM Corporation. The sll befor 10 yen. {@) IF RY Corporation desires a 12 percent turn on its investment, how ‘much should the lease payments be? (8) If RY Corporation is able 0 take a 10 percent deduction from the purchase price of P900,000 and wil pass the Benefit along tothe OPM. CCorpuration in she form of lower lease payments (related to the RI Corporations lowe ntl net cost, how rach should the revised lease payments be? Continue to ancene thet the RY Corporation desires 812 peteentretum onde 1-year lease. ‘An investor must choose Rewer. 10 bons ‘Bond A pays P80 annual interest and has a market valve of PROD thas 10 yeas ‘Bond B pays P8S annual interest and ha a market value of POOO. thas 2 years to rmatriy. 18) Compute the current ye on bath bonds. 1) Which bond should he slat based on your answer to pat (a)? ©) Arawback of curentyield stat it des nt tke into consideration the total life ofthe Lord. For eaample, the approximate yield to mation ‘Bond A is 11.36 percent. What is the approximate ye 9 maturity on Bond B? 44) Mas your answer changed between gars () and (eof this question in ferme of which bond io slet? ‘ ‘are checking 2 financial analyst's recom:nendatin. The analyst projects ery’ stock price wo be P72 per share in three years. The most recent anneal ‘as PI.68 per share. The analyst expects that dividend 10 grow at 9.8 annual), Given a 13.5 percent requied return the analyst clas the is undervalued athe caret price of PS4; thas he strongly urges investors uy it Using these assumptions the stock relly undervalued? Problem 3 ‘A 20-year, ,000 par value zero-coupon rate bond is 19 be issued to yield 11 percent |) What shouldbe the inital rice ofthe bond? (Take the present val of 1,000 for 20 years at 1 percent using the Table for Present Valve of a5 ‘Ondinary Anny.) 1) If immediately upon issue, interest rates cropped to 9 perent, wha ‘would be the value ofthe zero-coupon rate bond? 7 that ® company is about to embark on a large high-risk project. You that when this news is publicly announced. shareholders will react by nga higher returfom the company and by expecting faster grow. The pany is expected to pay P75 per share dividend next yar. You think that ‘current pice of P70 is fur, given the expected 9 percent growth rae. afer the announcement ivestors wll expecta 10 perent growth te nerease the required tur by 2 percent If this occurs & you predict, how the sock pice change because ofthe announcement? ©) I immediately upon issue, interest rats increased to 13 percent, what ‘would be the value ofthe zero-coupon rate bond?—E Probl [Noche Company was established in 1959. Four years Iter, the company public. At that time, Rober Noche, the original owner, decided t estelish ‘lasses of stock. The frst represents Class A founders” sock and is entitled ta I ‘votes per share. The normally waded common stock, designated os Clas B i entitled to one vote per share. In Ine 1996, Mr. Eduardo was considera purchasing shares in Noche Company. While he knew the existence of funders ‘hares was not oflen reset in oer companies, he decided to buy the ‘anyway because of « new technology Noche Company had developed to imp the lw of liquids through pipes. OF the 1200,00 ttl shares caret outstanding, te original founders" fi ‘owns $1325 shares, What i the percentage of the founders” family ‘ompared to the Clas B votes? Problem 9 ‘Nova Corporation has some excess cash that it woul ik to invest in markt securities fora longterm ho. Its vce president of finance is considering th Investments (Nova isin a38 percent ax bracket). ‘Which one shoud be selected based on aferaxretu (2) Treasury bonds at a9 percent yield; (©) Corporate bonds ata 12 percent yield (6) Prefered stock aa 10 percent yield? Problem 10 Gino. the treasurer of Green Botling Company (a corporation) curently 100,000 invested in prefered share yielding & percent. He appreciates the ‘advantages of prefered share and is considering baying P1G0,000 more borrowed fands The cost of the borrowed funds i 10 percent. He suggest ‘roposl to his board of directors. They are somewhat concerned by the fact ‘he weasurer wll be paying 2 percent more for funds thn the company will. ‘earning onthe investment. Green Botting sin 34 percent tax bracket (@) Compute the amount of the aflerax income fram the addi prefered stock if tis purchased. ong term Financing 687 () Compute the aflertax borrowing cost to purchase the atonal prefered stock. Tat is. multiply the interest cost tines () —T) (6) Should the treasurer proesed with is propos? Problem 11 efering back to the srginal information in problem 10, if the yield on the 100,000 of prefered share is stil percent and the bortowing cost ema "percent, bi the tx rate sony 5 percent, is this a feasible investment? Th following inf rnien applies 1 Problem 12 ant 13. Mahogany Corporation issued 20-year bonds five years ago with par value of 1.000. The coupon rte 14 percent and investors rue » 1D percent retumn ‘onthese bonds Problem 12 How much interest does Mahosany Corporation pay annually on each bond? Problem 13 Will the bond sel a discount, apa, or ata premivo? Explain why. Problem 14 [Nimo Power and Light has two P!.000 par value bonds outstanding. Bond X ‘matures in ive years and Bnd Y mutes in 15 yeas, Both bonds pey SO ‘terest annually and corny sll at thet per value. Thus the caren required rae ofretum is 8 perce (@) Which bond should show the greater price change in response to an inrease inthe required rat of reten? (©) What isthe intrinsic vale of each bond if the require rate of return is § prvent? (6) Compare the price changes inthe two bonds when the required rate of eau changes 09 percent,5 and has a current marks: ‘A prefered share pays an annual dividend of P67 ; Price of P7525, What is the required rate of etm on this prefered share? Problem 16 rose ividends on its ordinary eavty ‘Tristan Enerprises has paid P2.60 in annual dividend my share forthe past eight years and expects t0 maintain this amount for retum on this share, how foreseeable fate Ian investor requires a 13 percent ‘meh would he Be wiling to pay fora share? Problem 17 ty share divers of Zh Indice have been growing ata sete pce Te ae ‘aus 415 percent retum on the share, what thc val oF 10 sere ‘of ath Indsties une exch of he following cond? wt10 (0) The diviend posh ue expected to ese 1 5 pect ‘ sea a TO CR (©) The dividend growth rate is expected to increase to 12.5 percent and to remain constant at tha eel CHAPTER DIVIDENDS, SHARE REPURCHASt ‘SHARING FIRM WE OTHER PAYOUT LEARNING OBJECTIVES After studying Chapter 26, you should 1. Define dividends and enumerate th dividends, 2. Know the advantages and disadvan Paying dividends and why investors gains, 3. Explain the concept and theories of Policy. 8 Didend Policy nelevance 7 b. Dhidend Potcy Relevence Th 6. Reskual They ef Duende 4: Discuss the factors influencing se 5. Expain tho ypes of Didond Poke 2 Save Dena 3. Constant Diidend Peyout Rat &: Regular Ooidenas aaa 8. Know the pes of didnd (cos 7. Understand sock spite 8. Explain stock repurchase as an ater 8. Understand dividend reinvestment pa Soeae