Snyder Computer Chips Inc Assignment Help
1.Snyder Computer Chips Inc. is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15 percent during the next 2 years, at 13 percent in the third year, and at a constant rate of 6 percent thereafter. Snyder’s last dividend was $1.15, and the required rate of return on the stock is 12 percent.
a. Calculate the value of the stock today.
b. Calculate ˆP1 and ˆP2.
c. Calculate the dividend yield and capital gains yield for Years 1, 2, and 3
2. Wayne-Martin Electric Inc. (WME) has just developed a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, WME is expected to experience a 15 percent annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and WME’s growth rate will slow to 5 percent per year indefinitely. Stockholders require a return of 12 percent on WME’s stock. The most recent annual dividend (D0), which was paid yesterday, was $1.75 per share.
a. Calculate WME’s expected dividends for t = 1, t = 2, t = 3, t = 4, and t =5.
b. Calculate the value of the stock today,ˆP0. Proceed by finding the present value of the dividends expected at t = 1, t = 2, t = 3, t = 4, and t = 5 plus the present value of the stock price which should exist at t =5, ˆP5. The ˆP5 stock price can be found by using the constant growth equation. Notice that to find ˆP5, you use the dividend expected at t =6, which is 5 percent greater than the t =5 dividend.
c. Calculate the expected dividend yield, D1/P0, the capital gains yield expected during the first year, and the expected total return (dividend yield plus capital gains yield) during the first year. (Assume that ˆP0 = P0, and recognize that the capital gains yield is equal to the total return minus the dividend yield.) Also calculate these same three yields for t = 5 (e.g., D6/P5).
3.In the northeast United States and in eastern Canada, many people heat their houses with heating oil. Imagine you are one of these people, and you are expecting a cold winter, so you are planning your heating oil requirements for the season. The current price is $2.25 per US gallon, but you think that in six months, when you’ll need the oil, the price could be $3.00, or it could be $1.50.
A.If you need 350 gallons to survive the winter, how much difference does the potential price variance make to your heating bills?
B. If your friend Tom is running a heating oil business, and selling 100,000 gallons over the winter season, how does the price variance affect Tom?
C.Which one of you benefits from the price increase? Which of you benefits from price decrease?
D.What are two strategies you can use to reduce the risk you face? Could you make an agreement with Tom to mitigate your risk?
E.Assuming you are both risk-averse, does such an agreement make you both better off?
4.You have just received good news. You have a rich uncle in France who has decided to give you a monthly annuity of €2,000 per month. You are concerned that you will become accustomed to having these funds, but if the currency exchange rate moves against you, you may have to make do with less.
A.If you are living in Canada, what does it mean for the currency exchange rate to move against you?
B.Would moving to France mitigate some of the risk? If so, how? If not, why not?
C.If you want to stay in Canada, and your grandparents, who have retired to Provence, receive a Canadian pension of C$1100 each, what could you do to reduce the risk for all of you?
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5.Suppose you own 100 shares of Dell Inc. stock. Today it is trading at $15 per share, but you’re worried Michael Dell might retire again, causing the price to go down. How would you protect yourself against his retirement, assuming you don’t want to sell the shares today?
6.A dealer wants to borrow $10 million using a bond repo but due to certain market restriction he cannot repo out the bond for 2 months.
a. Suggest a strategy so that he can borrow the cash for the period without losing the permanent ownership of the bond.
b. Calculate the forward price of bond trading at $43.59 if the current repo rate is 4% p.a.
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