need answers in excel

Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%; its tax rate is 40%; the next expected dividend is $0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price of the stock is $15.00 per share; the flotation cost for selling new shares is F = 10%; and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?

Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company’s WACC if all the equity used is from retained earnings?

A. Butcher Timber Company hired your consulting firm to help them estimate the cost of common equity. The yield on the firm's bonds is 8.75%, and your firm's economists believe that the cost of common can be estimated using a risk premium of 3.85% over a firm's own cost of debt. What is an estimate of the firm's cost of common from retained earnings?

Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from retained earnings?

Grullon Co. is considering a 7-for-3 stock split. The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that it thinks would follow the split. What is the stock's expected price following the split?

The following data apply to Grullon-Ikenberry Inc. (GII):
Value of operations $1,000, Short-term investments $100, Debt $300, Number of shares 100; The company plans on distributing $50 million as dividend payments. What will the intrinsic per share stock price be immediately after the distribution?

The following data apply to Hill's Hiking Equipment:
Value of operations $20,000, Short-term investments $1,000, Debt $6,000, Number of shares 300; The company plans on distributing $50 million by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase?

Morales Publishing's tax rate is 40%, its beta is 1.10, and it uses no debt. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 5.0% and the market risk premium is 6.0%, by how much would the capital structure shift change the firm's cost of equity?

The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.
Now assume that AJC is considering changing from its original capital structure to a new capital structure that results in a stock price of $64 per share. The resulting capital structure would have a $336,000 total market value of equity and a $504,000 market value of debt. How many shares would AJC repurchase in the recapitalization?

What is the bond's conversion ratio? If the following is true:
Years to maturity: 10 Stock price: $30.00
Par value: $1,000.00 Conversion price: $35.00
Annual coupon: 5.00% Straight-debt yield: 8.00%

The common stock of Southern Airlines currently sells for $33, and its 8% convertible debentures (issued at par, or $1,000) sell for $850. Each debenture can be converted into 25 shares of common stock at any time before 2025. What is the conversion value of the bond?

According to the MM extension with growth, what is Kitto's value of equity? If the following is true:
EBIT: $200,000 rsU: 11%
Debt: $300,000 T: 40%
rd: 8% EBIT retained: 20%
g: 6%

The owners of Arthouse Inc., a national artist supplies chain, are contemplating purchasing Craftworks Inc, a smaller chain. Arthouse's analysts project that the merger will result in incremental free flows and interest tax savings with a combined present value of $72.52 million, and they have determined that the appropriate discount rate for valuing Craftworks is 16%. Craftworks has 4 million shares outstanding and no debt. Craftworks' current price is $16.25. What is the maximum price per share that Arthouse should offer?

Glassmakers has the below characteristics. The premerger debt is $5, the premerger equity is $10. The risk free rate is 6%. The premerger beta is 1.36. The tax rate is 40%. The cost of debt premerger is 11%. The expected market rate of return is 10%. What discount rate should you use to discount Glassmakers' free cash flows and interest tax savings?

Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers expects Fast Fruit's NOPAT to be $9 million the first year, with no net new investment in operating capital and no interest expense. For the second year, Fast Fruit is expected to have NOPAT of $25 million and interest expense of $5 million. Also, in the second year only, Fast Fruit will need $10 million of net new investment in operating capital. Fast Fruit's marginal tax rate is 40%. After the second year, the free cash flows and the tax shields from Fast Fruit to Juicers will both grow at a constant rate of 4%. Juicers has determined that Fast Fruit's cost of equity is 17.5%, and Fast Fruit currently has no debt outstanding. Assume that all cash flows occur at the end of the year, Juicers must pay $45 million to acquire Fast Fruit. What it the NPV of the proposed acquisition? Note that you must first calculate the value to Juicers of Fast Fruit's equity.

The firm has a 75% chance if it invests -$1,500 a return of $500 for 7-years, and a 25% chance of returning $25 for 7-years. Assuming that all cash flows are discounted at 10%. Calculate the effect of waiting on the project's risk, using the same data. By how much will delaying reduce the project's coefficient of variation? (Hint: Use the expected NPV.)

The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $55 sells for $7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option?

Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company’s tax rate is 40%. What is the component cost of debt for use in the WACC calculation?

Weaver Chocolate Co. expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells
for $32.50 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock?

To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?

Stephens Electronics is considering a change in its target capital structure, which currently consists of 25% debt and 75% equity. The CFO believes the firm should use more debt, but the CEO is reluctant to increase the debt ratio. The risk-free rate, rRF, is 5.0%, the market risk premium, RPM, is 6.0%, and the firm’s tax rate is 40%. Currently, the cost of equity, rs, is 11.5% as determined by the CAPM. What would be the estimated cost of equity if the firm used 60% debt? (Hint: You must first find the current beta and then the unlevered beta to solve the problem.)

Vafeas Inc.'s capital structure consists of 80% debt and 20% common equity, its beta is 1.60, and its tax rate is 35%. However, the CFO thinks the company has too much debt, and he is considering moving to a capital structure with 40% debt and 60% equity. The risk-free rate is 5.0% and the market risk premium is 6.0%. By how much would the capital structure shift change the firm's cost of equity?

Kelly Tubes is considering a merger with Reilly Tires. Reilly’s market-determined beta is 0.9, and the firm currently is financed with 20% debt, at an interest rate of 8%, and its tax rate is 25%. If Kelly acquires Reilly, it will increase the debt to 60%, at an interest rate of 9%, and the tax rate will increase to 35%. The risk-free rate is 6% and the market risk premium is 4%. What will Reilly’s required rate of return on equity be after it is acquired?

The market value of Firm L's debt is $200,000 and its yield is 10%. The firm's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 14%. Under the MM extension with growth, what would Firm L's total value be if it had no debt?

A regional restaurant chain, Club Café, is considering purchasing a smaller chain, Sally's Sandwiches, which is currently financed using 20% debt at a cost of 8%. Club Café's analysts project that the merger will result in incremental free cash flows and interest tax savings of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes a horizon value of $107 million.) The acquisition would be made immediately, if it is to be undertaken. Sally's pre-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 8%, and the market risk premium is 4%. What is the appropriate rate for use in discounting the free cash flows and the interest tax savings?

To the surprise of many, pedagogic focus on the complex realities that affect investment decisions reveals that gender has a strong influence on decision making. It is not a surprise to economic scholarly however because the factors that influence financial decision making are entrenched deeply into the equality debate as postulated in gender equality studies. A fair share of financial thinking and investment decision is highly dependent on the ability to tolerate risks, financial literacy, ability to control emotions and overcome hidden traps, and elements of overconfidence. This essay examines the effect of gender and gender connotation on investment decision making. It focuses on the elements of risk averseness, financial literacy and propensity toward decision making as a result of environmental and hormonal variations and how these differ across different genders.

Gender as a mutable factor

The word gender attracts a number of scholastic contentions when used in formal settings. However, such a continuum of thinking as it applies to the term is as a result of a confirmation bias error which various individuals have been brought up to uphold. A majority view gender from the commonly linguistic misuse where the term is used to denote the biological differences characterizing men and women. In sound pedagogy, however, gender transcends sexist thinking to encompass a myriad of social and cultural influences and perceptions about various sexes. It has been noted that one can be a male biologically but be female in terms of gender thinking and vice versa. Gender thinking as a post-modern concept applies to the specific societal perceptions and misperceptions associated with different biological entities, and which heavily influences the upbringing of the particular entity. Gender is hence a relative social role-based categorization and hence there is a general lack of a global perspective regarding the concept (Ho et al, 2015).

This lack of a global perspective creates different challenges for different disciplines. In economics, there is an escalated concern about whether gender thinking has a role to play in investment decision making. An exploration of this problem focuses on the dependent variables such as risk averseness, access to education affecting financial literacy and ability to overcome the hidden traps in decision making.

Risk averseness

An investment decision involves a great deal of risk taking. This is because an investor, despite conducting due diligence can never foretell succinctly what the future promises in return. The ability to make profit or loss from the investment decisions is not squarely reliant on entrepreneurial knowledge and skills. There is a myriad of external factors that can affect the returns. An example includes stock trading. There are several factors, both internally and externally that can impact trade. The implication of these factors is that an entrepreneur must have a huge risk appetite when deciding to invest in any trade.

Individuals, however, have different ways of dealing with risks. There are some who are highly tolerant also known as high-risk takers. There are those who are critically cautious and would shy away from taking a risk of any kind that would leave them in a status of oblivion. The element of being cautious with risk is known as risk averseness (Jamil, & Khan, 2016). Great entrepreneurs are often able to balance between being highly aggressive and notorious in taking high risks and being critically risk averse. The quality of being able to balance these two extreme is nevertheless not common. In addition, the existing patterns reveal that most individuals always tend toward the extreme while making an investment decision.

Fast forward to the issue of gender, it has often been observed that masculine gender is associated with being aggressive and is highly risk tolerant. This is mainly because of the nature of the upbringing. The male child is brought up to be aggressive and typically plays with a different set of toys that predispose him to risk taking. On the other hand, the feminine gender is brought up to be caregivers, nurturers and emotional being (Jawaheer, Vikneswaran, & Manual (2016). This affects the way they approach risks, a factor that manifests later in life while making investment decisions.

Financial literacy

There is a strong positive relationship between financial literacy and the ability to make a financial decision and investment decisions (Fisher, & Yao, 2017). Empirical findings reveal that individuals with a high level of financial literacy are more capable of making sound investment than those who do not. Financial literacy encompasses an array of knowledge and skills about various finance options and being able to apply this knowledge in entrepreneurial endeavors. Finance literate individuals are able to find the money for their investment, budget and plan and first and best of all save and control expenses, both personal and business. To obtain positive results and succeed in achieving investment milestones, financial literacy is highly deserved and needed (Montford, & Goldsmith, 2016).

The state of affairs, however, reveals that there is a dire death in financial literacy, often affected by a myriad of subjective factors specific to an individual. Several studies that explored the issue of financial literacy revealed that women have a lower predisposition toward low financial literacy than men. At least this confirms the existing fear that most men have toward taking their spouses to a shopping spree. First, of all the study confirmed that women are not able to control impulses that predispose them toward buying what they don’t need. A myriad of psychological and social-cultural factors makes them the target population for the consumerism economy, which tends them toward an inability to budget and control expenses.

It is not emotional impulses that could be the only factor in low levels of financial literacy. Perhaps one of the main reasons is the lack of financial education itself. By global standards, women are the disadvantaged gender when it comes to access to educational opportunities and hence financial literacy is not an exception (Tinkler et al, 2015) . This at least confirms feminist perspectives on equality and access to opportunities as a major factor hindering women from making more investment decisions than men.

There are however exceptions to this finding because there are instances of men who are highly predisposed to spendthrift behavior than women. Women who also reflect high levels of financial literacy are highly successful in making financial decisions. The overlying factor nevertheless is that financial literacy differs by gender and hence affects the ability, holistically of a specific gender predisposition to making concrete and sound investment decisions

Poor decision making and hidden traps due to biological factors

There are various ways that the mind is wired to make decisions. However, the mind does not always deliver results objectively. Most of the time people make poor decisions; the mind could be the culprit behind. The way this happens is known as mind hidden traps and their effect on decision making is often perilous.

Research on these aspects is highly on its infancy stage. However, it has for long been established that women are highly emotional beings which also impacts the way they make various decisions. More also, women’s emotions are also affected by hormonal issues. The biological connotation that arises from this dispensation is that because of the hormonal fluctuation in women, they tend to be more influenced by emotions than men are. This affects their decision making and also leads to a series of hidden traps such as status quo bias and framing bias. The status quo that has often been associated with emotional issues is the tendency to make decisions that one is comfortable and familiar with. Empirical findings reveal that women are more comfortable with the status quo than with aspects that lead to uncertainty. This also supports why they are more risk-averse than men.

Conclusion

Gender and its effect on decision making is a topic that has attracted numerous awareness and scholastic exploration in several disciplines worldwide. Of special importance is the realization that gender as a social and cultural creation of society leads to a number of perceptions and biases which ultimately affects how different genders make and approach different decisions. Empirical findings on risk averseness reveal that women are more inclined to risk averseness than toward tolerance. This consequently affects the investment decisions they make. Finally, women exhibit a low level of financial literacy which also leads to them making poor investment decisions or none at all. This is in addition to exhibiting dire emotional issues, which also implies that there is a biological connotation in investment decision making.

References

Fisher, P. J., & Yao, R. (2017). Gender differences in financial risk tolerance. Journal of Economic Psychology, 61, 191-202.

Ho, S. S., Li, A. Y., Tam, K., & Zhang, F. (2015). CEO gender, ethical leadership, and accounting conservatism. Journal of Business Ethics, 127(2), 351-370.

Jamil, S. A., & Khan, K. (2016). Does Gender Difference Impact Investment Decisions? Evidence from Oman. International Journal of Economics and Financial Issues, 6(2), 456-460.

Jawaheer, B. M., Vikneswaran, S., & Manual (2016). Gender Differences in Investment Decision Making Among the Working Class of Mauritius.

Montford, W., & Goldsmith, R. E. (2016). How gender and financial self‐efficacy influence investment risk taking. International journal of consumer studies, 40(1), 101-106.

Tinkler, J. E., Whittington, K. B., Ku, M. C., & Davies, A. R. (2015). Gender and venture capital decision-making: The effects of technical background and social capital on entrepreneurial evaluations. Social Science Research, 51, 1-16.