ACC-933 Financial Management Assignment 2Coming out of the depression, small stocks in the U.S....

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ACC-933 Financial Management Assignment 2Coming out of the depression, small stocks in the U.S. earned their highest one year historical return of 143% in 1933. However, in the four years prior to that you would have lost (going from 1929 to 1932, in order) about 50%, 40%, 50%, and 5%. Suppose you started into this five year stretch with $10,000 invested. How much did you still have heading into 1933? How much would you have at the end of that year? Based on these numbers, do you think the 143% return should be included in the return series? 2. Discuss the impact of the formation of the Euro on potential arbitrage opportunities. 3. Positive NPV projects enhance shareholder wealth. However, in some cases the payment of dividends limits the number of positive NPV projects a firm can take. Why, then, shouldn't shareholders prefer a residual dividend policy? 4. You own 100 shares of stock in SplitsVille Corp. Over the past three days, SplitsVille has done the following: It first split its stock 2-for-1. One day later it declared a 100% stock dividend. After one more day it executed a 1-for-4 reverse split. If you did not buy or sell any shares in the firm over this period, how many shares of stock did you have after EACH transaction? What would you assume happened to the price of the firm's stock as a result of these activities?
	
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ACC-933 Financial Management  
Assignment 2  
th
Due: Monday, April 18 , 2017 
Worth 10 Marks 
 
1. Coming out of the depression, small stocks in the U.S. earned their highest one year 
historical return of 143% in 1933. However, in the four years prior to that you would 
have lost (going from 1929 to 1932, in order) about 50%, 40%, 50%, and 5%. Suppose 
you started into this five year stretch with $10,000 invested. How much did you still have 
heading into 1933? How much would you have at the end of that year? Based on these 
numbers, do you think the 143% return should be included in the return series?  
2. Discuss the impact of the formation of the Euro on potential arbitrage opportunities.  
3. Positive NPV projects enhance shareholder wealth. However, in some cases the payment 
of dividends limits the number of positive NPV projects a firm can take. Why, then, 
shouldn't shareholders prefer a residual dividend policy?  
4. You own 100 shares of stock in SplitsVille Corp. Over the past three days, SplitsVille has 
done the following: It first split its stock 2-for-1. One day later it declared a 100% stock 
dividend. After one more day it executed a 1-for-4 reverse split. If you did not buy or sell 
any shares in the firm over this period, how many shares of stock did you have after 
EACH transaction? What would you assume happened to the price of the firm's stock as a 
result of these activities?

Final Directions: 
• Submit in Office Word format in The Dropbox in A2L.  
• Clearly indicate the rationale for all assumptions. 
• Properly reference any outside  sources used 
• The whole assignment, not including cited references should not exceed 
1,200 words  
 
  Page 1 of 1

David · Accepted Answer

Solutions to ACC-933 Financial Management, Assignment 2 
Due: Monday, April 18th, 2017 
 
1. Here, the question requires you to calculate the value of your initial investment ($10,000) at the 
end of every year for the investment horizon of 5 years, as this will provide a true picture of the 
returns earned on the initial investment.  
Year 1: $10,000 x -50% = $5,000 
Year 2: $5,000 x -40% = $3,000 
Year 3: $3,000 x -50% = $1,500 
Year 4: $1,500 x -5% = $1,425 
Year 5: $1,425 x 143% = $3,463 
So, the amount you had in your account was $3,463 at the end of year 5 that means you actually 
made a loss during the investment period of 5 years. Nonetheless, the return of 143% should be 
included in the series.
2. Formation of the Euro resulted in introduction of one new single currency that was adopted by 12 
countries and these 12 countries gave up their own currency.

ACC-933 Financial Management Assignment 2 Coming out of the depression, small stocks in the U.S. earned their highest one year historical return of 143% in 1933. However, in the four years prior to...

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