PART B (9 points). Read Warren Buffett’s shareholder letter and…
Question Answered step-by-step PART B (9 points). Read Warren Buffett’s shareholder letter and… PART B (9 points). Read Warren Buffett’s shareholder letter and answer the following questions. We learned, I hope that you still remember so, in the first part of our course that companies have two sources for financing: Equity (shareholders or owners) and Debt (banks, bondholders, etc.), which two other funding sources WB mentioned that Berkshire Hathaway has?, briefly describe these two additional sources and tell approximately how much each of these additional sources provides in funding (amount of money). WB talked about his first investment and discussed a hypothetical situation where you could had had the option to invest that amount in stocks (S&P 500 ) or gold, which was the better option? And why do you think the return was so much better in one type of investment versus the other? Considering the list of the fifteen common stock investments that Berkshire has in its portfolio (page 12), which stock provided the best return in % and which one in absolute numbers (in $$)? PART C (9 points). Read the article: “The repurchase revolution” and answer the following questions, make sure to review your class notes, slides, textbook to incorporate concepts that we learned in class in your replies. In class, we have seen that stock repurchases are a good “signaling” that companies provide to the market, but the article thinks that in this case is otherwise, explain why. The article mentions that some companies are being rewarded with higher stock prices without a need to pay a dividend or repurchase stock, just by reinvesting their profit back in their business, how can you explain this? (Hint: think about the type of companies (Amazon), cost of capital vs returns of a project, etc.) In the article is mentioned that a corrupt manager can take advantage of a share-buyback, how this work? Do a simple example showing how this scheme can work. PART D (27 points). Fyre v2.0 – Festival I have a friend who offered me an opportunity to invest in the Fyre Festival version 2.0[1]. He said that it will be highly successful and became the new Coachella or Ultra. It first version will be in 2021 and they are planning to do it in an island in Miami, they said that they are in discussions with Brickell Key Island and Grove Isle. He said that I should invest $1MM now and I will receive a share of the profits in each of the 4 next Festivals. He mentioned that the estimation of my share of the profits that they calculated is the following one: 2020: $300,0002021: $450,0002022: $600,0002023: $700,000 Use a discount rate of 12% and as benchmark for recover the initial investment is 3 years, calculate and answer: Calculate IRR, should I invest according to this tool?NPV, should I invest according to this tool?Payback period, should I invest according to this tool? PART E (21 points). Resolve the following problems: You purchased 500 shares of Visa, Inc. (stock symbol: V) last December 2020 at $218 per share. Since then, it paid a $1.50 per share dividend. You have just decided to sell all your shares at the current stock price (Check in any financial website for the current quote) and then calculate what was your percent and dollar return of your investment?[1] (If you do not know what it was Fyre, I suggest watching the documentary about it: FYRE: The Greatest Party That Never Happened in Netflix or Fyre Fraud in Hulu. You do not need to watch those documentaries for the exam. 2. The Miami location of Chick-fil-A, Inc. had 2021 income statement listed net sales = $12.5 million and net income available to common stockholders = $3.2 million. The 2021 year-end balance sheet listed total assets of $52.5 million and common stockholders’ equity of $21 million with 2 million shares outstanding. Calculate the profit margin, ROA,and ROE 3. You borrow money from your grandma to invest in the market. You grandma agrees to give you $3,000 for 3 years without charging you any interest. You estimate that you can earn 8% per year during the next 3 years. How much money will you make after returning your grandma her loaned money? PART F (10 points). Spotify’s capital structure features 65 percent equity, 35 percent debt, and that its before-tax cost of debt is 8 percent, while its cost of equity is 13 percent. If the appropriate weighted average tax rate is 21 percent, what will be Spotify’s WACC? Costco has a capital structure of 78 percent equity, 22 percent debt, and that its before-tax cost of debt is 11 percent while its cost of equity is 15 percent. If the appropriate weighted average tax rate is 21 percent, what will be Costco’s WACC? PART G (5 points) The USD to Australian dollar exchange rate in January 2020 was 1.49 Australian dollars per dollar. Investigate how much is the current exchange rate and answer:1.1 Has the Australian dollar depreciated or appreciated versus the USD.1.2 Your sister, who lives in USA, is planning to Australia for vacation in July; will she find Australia expensive or cheap compared with USA? And why? Part H (9 Points) – advice: do not overthink your answers 1) A lady walks in the store and steals $100 bill from the register without the owner’s knowledge. She comes back 5 min later and buys $70 worth of goods with the $100 bill. The owner gives her $30 in change. How much did the owner lose and explain why you think so?a) $30b) $70c) $100d) $130e) $170f) $200 2) A man who has some money, buys a goat for $60. Then sells it for $70. Then buys it back for $80 and sells it again for $90. A) How much did he make and provide your reasoning? B) Which would have been the optimum trading strategy, if he had known the movements of the goat’s market price beforehand and how much money would have made using this strategy? Business Finance FIN 3400 Share QuestionEmailCopy link Comments (0)
