Financial Planning Exercise # 2 Applying Personal Finance-all questions. Ctitical Thinking Cases # 11.1 1. Assume that the following quote for Merck, a NYSE stock, appeared on August 1, 2012 (Tuesday) on Yahoo! Finance (http://finance.yahoo.com/q?s=MRK&ql=0): Merck & Co. Inc. (MRK) — NYSE 44.56 ↑ 0.39(0.88%) 1:34PM EDT Prev Close: 44.17 Day’s Range: 44.25 – 44.79 Open: 44.45 52wk Range: 29.47 – 45.17 Bid: 44.62 x 6900 Volume: 5,345,943 Ask: 44.63 x 1400 Avg Vol (3m): 15,788,300 1y Target Est: 45.69 Market Cap: 135.74B Beta: 0.43 P/E (ttm): 20.44 Next Earnings Date: N/A EPS (ttm): 2.18 Div & Yield: 1.68 (3.80%) Given this information, answer the following questions. 1. At what price did the stock sell at the time of the quote? 2. What is the stock’s price/earnings ratio? What does that indicate? 3. What is the last price at which the stock traded on the prior trading day? 4. What is the stock’s dividend yield? 5. What are the highest and lowest prices at which the stock traded during the latest 52-week period? 6. How large is the market capitalization of the company? Applying Personal Finance Research Your Investments! Investing involves making informed decisions, which means researching companies and industries before plunking down your hard-earned money! An excellent source of information about a company is the company itself, particularly its annual report to stockholders. In this project, you’ll examine the annual stockholders’ report of a company in which you are interested. The annual report is a document that provides financial and operating information about a company to its owners, the stockholders. Obtain a copy of the latest annual report of the company you are researching. Copies can be found in many public and college libraries, at local brokerage offices, or on the company’s Web site. Carefully study the annual report and then prepare a corporate profile of the firm you selected. Your profile should include the following elements: 1. Name of the company, its ticker symbol, and the exchange on which it trades 2. Current market price of the stock and its percentage change from 1, 3, and 5 years ago (try to find a chart of its stock price) 3. Location of its corporate headquarters, names of its officers, and percentage of inside ownership 4. Brief description of the company, including its major products or services 5. Brief history of the company 6. Major competitors 7. Sales and profit summaries 8. Other relevant financial ratios and measures 9. Recent developments and future plans Based on your findings, would you consider this company for a potential investment? Why or why not? Critical Thinking Cases 11.1The Useltons Struggle with Two Investment Goals Like many married couples, Gene and Stacey Uselton are trying their best to save for two important investment objectives: 1. an education fund to put their two children through college; and 2. a retirement nest egg for themselves. They want to have set aside $40,000 per child by the time each one starts college. Given that their children are now 10 and 12 years old, Gene and Stacey have 6 years remaining for one child and 8 for the other. As far as their retirement plans are concerned, the Useltons both hope to retire in 20 years, when they reach age 65. Both Gene and Stacey work, and together, they currently earn about $90,000 a year. Six years ago, the Useltons started a college fund by investing $6,000 a year in bank CDs. That fund is now worth $45,000—enough to put one child through an in-state college. They also have $50,000 that they received from an inheritance invested in several mutual funds and another $20,000 in a taxsheltered retirement account. Gene and Stacey believe that they’ll easily be able to continue putting away $6,000 a year for the next 20 years. In fact, Stacey thinks they’ll be able to put away even more, particularly after the children are out of school. The Useltons are fairly conservative investors and feel they can probably earn about 6 percent on their money. (Ignore taxes for the purpose of this exercise.) Critical Thinking Questions 1. Use Worksheet 11.1 to determine whether the Useltons have enough money right now to meet their children’s educational needs. That is, will the $45,000 they’ve accumulated so far be enough to put their children through school, given they can invest their money at 6 percent? Remember, they want to have $40,000 set aside for each child by the time each one starts college. 2. Regarding their retirement nest egg, assume that no additions are made to either the $50,000 they now have in mutual funds or to the $20,000 in the retirement account. How much would these investments be worth in 20 years, given that they can earn 6 percent? 3. Now, if the Useltons can invest $6,000 a year for the next 20 years and apply all of that to their retirement nest egg, how much would they be able to accumulate given their 6 percent rate of return? 4. How do you think the Useltons are doing with regard to meeting their twin investment objectives? Explain.