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Jersey Jewel Mining has a beta coefficient of 1.2. Currentlytherisk-free rate is 5 percent
and the anticipated return on the market is 11 percent. JJM paysa$4.50 dividend that is
growing at 6 percent annually.
a. What is the required return for JJM?
b. Given the required return, what is the value of the stock?
c. If the stock is selling for $80, what should you do?
d. If the beta coefficient declines to 1.0, what is the new valueofthe stock?
e. If the price remains $80, what course of action should youtakegiven the valuation in
(d)?

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Beverley Smith
Beverley SmithLv2
28 Sep 2019

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Need Explanation andDetail in Excel Format:


1 The corporate treasurer of Ajax Company expects the company togrow at 4% in the future, and debt securities
at 6% interest (tax rate = 30%) to be a cheaper option to financethe growth. The current market price per share
of its common stock is $39, and the expected dividend in one yearis $1.50 per share. Calculate the cost of the company's
retained earnings and check if the treasurer's assumption iscorrect.

2 The risk-free rate on 10-year U.S. Treasury bills is 3% and theexpected rate of return on the overall stock market is 11%.
The company has a beta of 1.6. What is the cost of equity?

3 A company has a capital structure as follows:
Total Assets $600,000
Debt $300,000
Preferred Stock $100,000
Common Equity $200,000
What would be the minimum expected return from a new capitalinvestment project to satisfy the suppliers of the capital?
Assume the applicable tax rate is 40%, interest on debt is 11%,flotation cost per share of preferred stock is $0.75, and
flotation cost per share of common stock is $4. The preferred andcommon stocks are selling in the market for $26 and $143
a share respectively, and they are expected to pay a dividend of $2and $7, repectively, in one year. The company's dividends
are expected to grow at 13% per year. The firm would like tomaintain the existing capital structure to finance the new
project.

4 Required rate of return is 10%.
Net Cash Flow
Year Project A Project B
0 -$2,000 -$2,500
1 $900 $1,500
2 $1,100 $1,300
3 $1,300 $800
a) Calculate the payback period for each project.
b) Calculate the net present value for each project.

c) Which project do you think will be approved, if only one projectcan be approved? Why?
d) What if the required rate of return was 20%?




5 A corporate bond has a face value of $1,000 and an annual couponinterest rate of 7%. Interest is paid annually.
10 years of the life of the bond remain. The current market priceof the bond is $872. To the nearest whole percent,
what is the yield to maturity (YTM) of the bond today?



6 Ajax Manufacturing dividend is $8 per share of common stock inone year. The dividend growth rate is 3%.
Required rate of return is 14%.

a) What is the current market price per share?
b) What is the annual rate of return if you purchase the stock at$65?


7. A common stock sells for $82 per share, has a growth rate of 7%and a dividend that was just paid of $3.82. What is the
annual percent yield per share?

8 A corporate bond has a face value of $1,000 and an annual couponinterest rate of 6%. Interest is paid annually.
12 years of the life of the bond remain. The current market priceof the bond is $1,027, and it will mature at $1,100.
To the nearest whole percent, what is the yield to maturity (YTM)of the bond today?


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