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The Board of Directors of Hennessey Corp. are assessing the impact of their plans on the price of their common stock and their shareholders' value. Presently, the firm's dividends have been growing at a sustained 16% annual rate. The firm's required rate of return is 17% and the Board's planned next dividend is $2.10 (annualized).
The company is presented with a series of opportunities that will require additional funding. One alternative being considered is to raise this funding by increasing retained earnings and slowing the growth of the dividends to 15%. Changing the growth rate will not change the required return (17%) or the next dividend ($2.10).
Many directors assert the small (1%) change in dividend growth rate (with no reduction in dividends) will have a negligible impact on shareholder value and want to proceed immediately. You have been asked to evaluate the decision.
a. Determine the present Hennessey stock price.Determine the present Hennessey stock price.b. Determine the stock price if the alternative is pursued.c. Should the firm pursue this course of action? Why / Why not?
While on vacation in Brazil, Mr. Tall, a citizen of the United States, met Mr. Wide, a citizen of Brazil. Mr. Wide offered to sell Mr. Tall a vacation home in Brazil and to finance the purchase himself.
Suppose a firm has been growing at a 15% yearly rate and is expected to continue to do so for 3 more years. At that time, growth is expected to slow to a constant 4% rate.
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During 1998, the Senbet Discount Tire firm had gross sales of $1 million. The company’s cost of goods sold and selling expenses were $300,000 and $200,000, respectively.
Assume that River Cruises, which currently is all-equity-financed, issues $250,000 of debt and uses the proceeds to repurchase 16,667 shares. Suppose that the company pays no taxes and that debt finance has no impact on its market value.
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On March 3, Lisa Ceja Appliances sells $700,000 of its receivables to Horatio Factors Inc. Horatio Factors assesses a finance charge of 3% of the amount of receivables sold.
What is the beta coefficient and how is it used to adjust for different levels of risk?
At my work, I support a particular group of people with back up assistance of a consultant from a third party supplier. This third party supplier backs me up as well as a colleague of mine who supports an entirely separate group of customers.
The tax act passed in 2001 raised the contribution limit on the IRA's from $2,000 to $5,000 by 2008. What impact, if any, would you expect this provision to have on the personal savings?
Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 8 percent compounded semiannually.
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