PFIN3 Study Set 1

Business

Quiz 11 :

Investment Planning

Quiz 11 :

Investment Planning

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Using the S P report in Exhibit 11.5, find the following information for Apple. a. What was the amount of revenues (i.e., sales) generated by the company in 2011? b. What were the latest annual dividends per share and dividend yield? c. What were the earnings per share (EPS) projections for 2012? d. How many common shareholders were there? e. What were the book value per share and EPS in 2011? f. How much long-term debt did the company have in 2011? img
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a)
The company had generated $ 108,249 million revenue in the year 2011.
b)
The company had not paid dividend in the year 2011, hence the dividend per share was nil and the dividend yield also nil.
c)
The EPS expected in 2012 was $ 43.80
d)
The total common shares outstanding were 937.4 million as at 2011.
e)
Book value per share was $ 77.68 and EPS $ 27.68
f)
The company had not long term debt in 2011.

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Why do you suppose that well-known companies such as Apple and Facebook prefer to have their shares traded on the NASDAQ rather than on one of the major listed exchanges, such as the NYSE (for which they'd easily meet all listing requirements)? What's in it for them? What would they gain by switching over to the NYSE?
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Listing on NYSE would give brand recognition to the companies. Being listed on NYSE would help in finding more investors and improve market confidence in the company.
Companies like Apple and Facebook prefer NASDAQ over NYSE although they easily meet the listing requirements because of the following reasons:
• Transactions in NASDAQ are faster and therefore allow quicker execution of orders and reduce the uncertainty due to market movement.
• Lower execution cost at NASDAQ due to lower effective spread than NYSE reduces the trading costs
• The average spread at NASDAQ is lower which provides better liquidity to traders and investors.
Institutional investors prefer NASDAQ due to its high speed, competitive, transparent and accessible market; hence companies prefer listing in NASDAQ over NYSE.

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Use Worksheet 11.1. Linda Scales is now employed as the managing editor of a wellknown business journal. Although she thoroughly enjoys her job and the people she works with, what she would really like to do is open a bookstore of her own. She would like to open her store in about eight years and figures she'll need about $50,000 in capital to do so. Given that she thinks she can make about 10 percent on her money, use Worksheet 11.1 to answer the following questions. a. How much would Linda have to invest today, in one lump sum, to end up with $50,000 in eight years? b. If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in eight years? c. If she already has $10,000 socked away, how much would she have to put away annually to accumulate the required capital in eight years? d. Given that Linda has an idea of how much she needs to save, briefly explain how she could use an investment plan to help reach her objective. img
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a)
The following table P1 shows the calculation of determining lump sum investment , which is as follows:
img In the table P1 , the lump sum investment is calculated by dividing the target financial goals with Future Value Factor.
Therefore, form the above calculations it can be concluded that Ms. L have to invest
img in one lump sum, to end up with $50,000 in eight years.
b)
The following table P2 shows the calculation of determining the annual payments required , which is as follows:
img In the table P2 , the annual payment required is calculated by dividing the target financial goals with future value factor for annuity.
Therefore, from the above calculations it can be concluded that, Ms. L have to put away
img annually to accumulate the required capital in eight years.
c)
The following table P3 shows the calculation of determining the annual payments required , which is as follows:
img In the table P3 , the terminal value of initial investment, is calculated by multiplying the initial amount with future value factor.
In the table P3 , the annual payment required is calculated by dividing the balance from annual investment with the future value factor for annuity.
Therefore, form the above calculations it can be concluded that , Ms. L have to put away
img annually to accumulate the required capital in eight years.
d)
Ms. L could use the investment plans to achieve her goals an open a book shop in 8 years.
The following ways helps Ms. L in achieving her objectives easily through an investment plan, which are as follows:
• An investment plan would provide with a wide range of plans to suit her requirements such as annual or monthly plans.
• Different plans are market linked and can provide significant return making the achievement of target amount easy
• A target savings amount can be achieved through disciplined savings through an investment plan.

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Using the Web site for Yahoo! Finance (http://finance.yahoo.com) , find the 52-week high and low for Google's common stock (symbol GOOG). What is the stock's latest dividend yield? What was Google's most recent closing price, and at what P/E ratio was the stock trading?
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Suppose that Leonard Krauss places an order to buy 100 shares of Google. Explain how the order will be processed if it's a market order. Would it make any difference if it had been a limit order? Explain.
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Using a resource like The Wall Street Journal or Barron's (either in print or online), find the latest values for each of the following market averages and indexes, and indicate how each has performed over the past six months: a. DJIA b. S P 500 c. NASDAQ Composite d. S P MidCap 400 e. Dow Jones Wilshire 5000 f. Russell 2000
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