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REH Corporation's most recent dividend was $2.72 per share, its expected annual rate of dividend growth is 5% and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions.
a. Do nothing, which will leave the key financial variables unchanged
b. Invest in a new machine that will increase the dividend growth rate to 8% and lower the required rate of return to 12%
c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 9% and raise the required return to 18%
d. Merge with another firm, which will reduce the growth rate to 4% and raise the required return to 17%
e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 8% and increase the required return to 18%
NPV A project has an initial cost of $53,725, expected net cash inflows of $13,000 per year for 10 years, and a cost of capital of 12%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations...
To expand its operation, Amarillo Industries has applied to the Local Bank for a 3-year, $3,500,000 loan. Prepare a loan amortization table assuming 10 percent rate of interest. Be sure to show “payment”; “principal” and “interest” for each year.
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Data for Dana Industries is shown below. Now Dana acquires some risky assets that cause its beta to increase by 35%. In addition, expected inflation increases by 2.40%. What is the stock's new required rate of return?
Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $ 9,750,000, with a promise to back them back at a price of $20,000,000. Calculate the yield on repo if it has a 7 days..
Summerdahl Resorts' common stock is currently trading at $22.00 per share. The stock is expected to pay a dividend of $2.50 a share at the end of the year (D1 = $2.50), and the dividend is expected to grow at a constant rate of 3% a year. What is the..
Should we base our decisions on which opportunities to pursue solely based on quantitative evaluation methods like NPV, IRR, MIRR, Payback, Real Options and others? Support your view.
Will her broker put in a margin call to her, asking her to put up more funds? - If so, how much more? What if the price falls to $50? In each case, if so, how much more?
Negus Enterprises has an inventory conversion period of 50 days, an average collection period of 35 days, and a payable deferral of 25 days. Assume that cost of goods sold is 80% of sales. What is the length of the firm's cash conversion cycle? Calcu..
The owners of a chain of fast-food restaurants spend $25000000 installing donut makers in all their restaurants. This is expected to increase cash flows by $11000000 per year for the next 5 years. The discount rate is 5.3%. What is the net present va..
Describe the maximum gain when a bear spread is created from the calls Describe the maximum loss when a bear spread is created from the calls
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