BBA 3310 Unit VI Assignment

BBA 3310 Unit VI AssignmentInstructions: Enter all answers directly in this worksheet. When finished select Save As, and save this document using your last name and student ID as the file name. Upload the data sheet to Blackboard as a .doc,.docx or

BBA 3310 Unit VI Assignment

Instructions: Enter all answers directly in this worksheet. When finished select Save As, and save this document using your last name and student ID as the file name. Upload the data sheet to Blackboard as a .doc,.docx or .rtf file when you are finished.

Question 1:(10 points).(Bond valuation) Calculate the value of a bond that matures in 12 years and has $1,000 par value. The annual coupon interest rate is 9 percent and the market’s required yield to maturity on a comparable-risk bond is 12 percent. Round to the nearest cent.

The value of the bond is

Question 2: (10 points).(Bond valuation) Enterprise, Inc. bonds have an annual coupon rate of 11 percent. The interest is paid semiannually and the bonds mature in 9 years. Their par value is $1,000. If the market’s required yield to maturity on a comparable-risk bond is 14 percent, what is the value of the bond? What is its value if the interest is paid annually and semiannually? (Round to the nearest cent.)

a. The value of the Enterprise bonds if the interest is paid semiannually is
$
b. The value of the Enterprise bonds if the interest is paid annually is
$

Question 3: (10 points).(Yield to maturity) The market price is $750 for a 20-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond’s yield to maturity? (Round to two decimal places.)

The bond’s yield to maturity is

%

Question 4: (10 points).(Yield to maturity) A bond’s market price is $950. It has a $1,000 par value, will mature in 14 years, and has a coupon interest rate of 8 percent annual interest, but makes its interest payments semiannually. What is the bond’s yield to maturity? What happens to the bond’s yield to maturity if the bond matures in 28 years? What if it matures in 7 years?(Round to two decimal places.)

The bond’s yield to maturity if it matures in 14 years is

%
The bond’s yield to maturity if it matures in 28 years is

%
The bond’s yield to maturity if it matures in 7 years is

%

Question 5: (15 points).(Bond valuation relationships) Arizona Public Utilities issued a bond that pays $70 in interest, with a $1,000 par value and matures in 25 years. The markers required yield to maturity on a comparable-risk bond is 8 percent.(Round to the nearest cent.)For questions with two answer options (e.g. increase/decrease) choose the best answer and write it in the answer block.

Question
Answer
a. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond is 8 percent?
$

b. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond increases to 11 percent?
$

c. What is the value of the bond if the market’s required yield to maturity on a comparable-risk bond decreases to 7 percent?

$

d. The change in the value of a bond caused by changing interest rates is called interest-rate risk. Based on the answer: in parts b and c, a decrease in interest rates (the yield to maturity) will cause the value of a bond to (increase/decrease):

By contrast in interest rates will cause the value to (increase/decrease):

Also, based on the answers in part b, if the yield to maturity (current interest rate) equals the coupon interest rate, the bond will sell at (par/face value):

exceeds the bond’s coupon rate, the bond will sell at a (discount/premium):

and is less than the bond’s coupon rate, the bond will sell at a (discount/premium):

e. Assume the bond matures in 5 years instead of 25 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 8 percent? $ 960.07 Assume the bond matures in 5 years instead of 25 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 11 percent?
$

f. Assume the bond matures in 5 years instead of 25 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 7 percent?
$

g. From the findings in part e, we can conclude that a bondholder owning a long-term bond is exposed to (more/less) interest-rate risk than one owning a short-term bond.

Question 6: (5 points).(Measuring growth) If Pepperdine, Inc.’s return on equity is 14 percent and the management plans to retain 55 percent of earnings for investment purposes, what will be the firm’s growth rate?(Round to two decimal places.)

The firm’s growth rate will be
7.70
%

Question 7: (10 points).(Common stock valuation) The common stock of NCP paid $1.29 in dividends last year. Dividends are expected to grow at an annual rate of 6.00 percent for an indefinite number of years. (Round to the nearest cent.)

a. If your required rate of return is 8.70 percent, the value of the stock for you is:
$
b. You (should/should not) make the investment if your expected value of the stock is (greater/less) than the current market price because the stock would be undervalued.

Question 8: (10 points).(Measuring growth) Given that a firm’s return on equity is 22 percent and management plans to retain 37 percent of earnings for investment purposes, what will be the firm’s growth rate? If the firm decides to increase its retention rate, what will happen to the value of its common stock? (Round to two decimal places.)

a. The firm’s growth rate will be:
8.14%
b. If the firm decides to increase its retention ratio, what will happen to the value of its common stock? An increase in the retention rate will (increase/decrease) the rate of growth in dividends, which in turn will (increase/decrease) the value of the common stock.

Question 9: (10 points).(Relative valuation of common stock) Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions:

· the investor’s required rate of return is 13 percent,
· the expected level of earnings at the end of this year (E1) is $8,
· the firm follows a policy of retaining 40 percent of its earnings,
· the return on equity (ROE) is 15 percent, and
· similar shares of stock sell at multiples of 8.571 times earnings per share.

Now show that you get the same answer using the discounted dividend model. (Round to the nearest cent.)

a. The stock price using the P/E ratio valuation method is:
$
b. The stock price using the dividend discount model is:
$

Question 10: (10 points) (Preferred stock valuation) Calculate the value of a preferred stock that pays a dividend of $8.00 per share when the market’s required yield on similar shares is 13 percent. (Round to the nearest cent.)

a. The value of the preferred stock is
$
Per share

Life under the Chief Doublespeak Officer
By William Lutz
If there’s one product American business can produce in large amounts, it’s doublespeak. Doublespeak is language that only pretends to say something; it’s language that hides, evades or misleads.
Doublespeak comes in many forms, from the popular buzzwords that everyone uses but no one really understands – “glocalization,” “competitive dynamics,” “re-equitizing” and “empowerment” – to language that tries to hide meaning: “re-engineering,” “synergy,” “adjustment,” “restructure” and “force management program.”
With doublespeak, no truck driver is the worst driver, just the “least-best” driver, and bribes and kickbacks are called “rebates” or “fees for product testing.” Even robbery can be magically transformed with doublespeak, as a bank in Texas did when it declared a robbery of an ATM to be an “authorized transaction.” Willie Sutton would have loved to have heard that.
Automobile junkyards, junk and used car parts have become “auto dismantlers and recyclers” who sell “predismantled, previously owned parts.” Don’t want people to know you’re in the business of disposing of radioactive and chemical wastes? Then call your company “U.S. Ecology Inc.”
Wages may not be increasing, but the doublespeak of job titles sure has increased. These days, your job title has to have the word “chief” in it. How many kinds of “chiefs” are there? Try these titles on for size: Chief Nuclear Officer, Chief Procurement Officer, Chief Information Officer, Chief Learning Officer, Chief Transformation Officer, Chief Cultural Officer, Chief People Officer, Chief Ethics Officer, Chief Turnaround Officer, Chief Technology Officer, and Chief Creative Officer. After all the “operations improvement” corporations have undergone, you have to wonder who all those “chiefs” are leading. Never before have so few been led by so many.
These days, a travel agent may be called a “travel counselor,” “vacation specialist,” “destination counselor” or “reservation specialist.” As part of their merger, Chase Manhattan Bank and Chemical Bank decided that the position of “Relationship Manager” would be divided between executives of both banks. What is a “Relationship Manager”? Once upon a time this person was called a salesman. And if you’re late in paying your bill after buying something from one of these “Relationship Managers,” you’ll be called by the “Persistency Specialist,” or bill collector. If you’re “downsized,” the “Outplacement Consultant” or unemployment counselor will help you with “re-employment engineering,” or how to find another job.
With doublespeak, banks don’t have “bad loans” or “bad debts”; they have “nonperforming assets” or “nonperforming credits” which are “rolled over” or “rescheduled.” Corporations never lose money; they just experience “negative cash flow,” “deficit enhancement,” “net profit revenue deficiencies,” or “negative contributions to profits.”
No one gets fired these days, and no one gets laid off. If you’re high enough in the corporate pecking order, you “resign for personal reasons.” (And then you’re never unemployed; you’re just in an “orderly transition between career changes.”)
But even those far below the lofty heights of corporate power are not fired or laid off. Firing workers is such big business in these days of “re-engineering,” “restructuring” and “downsizing” that there are companies whose business is helping other companies fire their workers. (Think about that for a minute.) These companies provide “termination and outplacement consulting” for corporations involved in “reduction activities.” In other words, they teach companies how to fire or lay off workers. During these days of “cost rationalization,” companies fire or lay off workers many different ways. How do I fire thee? Let me count the ways.
Companies make “workforce adjustments,” “headcount reductions,” “census reductions,” or institute a program of “negative employee retention.” Corporations offer workers “vocational relocation,” “career assignment and relocation,” a “career change opportunity,” or “voluntary termination.” Workers are “dehired,” “deselected,” “selected out,” “repositioned,” “surplussed,” “rightsized,” “correct sized,” “excessed,” or “uninstalled.” Some companies “initiate operations improvements,” “assign candidates to a mobility pool,” “implement a skills mix adjustment,” or “eliminate redundancies in the human resources area.”
One company denied it was laying off 500 people at its headquarters. “We don’t characterize it as a layoff,” said the corporate doublespeaker (sometimes called a spin doctor). “We’re managing our staff resources. Sometimes you manage them up, and sometimes you manage them down.” Congratulations. You’ve just been managed down, you staff resource you.
An automobile company announced the closing of an entire assembly plant and the elimination of over 8,000 jobs by announcing “a volume-related production schedule adjustment.” Not to be outdone by its rival, another car company “initiated a career alternative enhancement program”‘ that enhanced over 5,000 workers out of their jobs. By calling the permanent shutdown of a steel plant an “indefinite idling,” a corporation thought that it wouldn’t have to pay severance or pension benefits to the workers who were left without jobs.
Doublespeak can pay for the company, but usually not for the workers who lose their jobs.
As Pogo said, “We have met the enemy, and he is us.” Or maybe Dilbert got it better: “Do we really get paid for writing this stuff?”
William Lutz is professor of English at Rutgers University and author of the new book The New Doublespeak: Why No One Knows What Anyone’s Saying Anymore.

Used only reliable sources as defined in course readings.
25
Correctly formatted the paper and each citation for each reference in APA style.
25
Included a detailed annotation for each citation.
25
Used correct spelling and grammar in annotations and citations.
25
Total:
100

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