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Suppose investors in Proctor and Gamble have a 7% cost of equity. Based on Analysts’ forecasts you expect Proctor and Gamble to have earnings per share of $3.80 in one year and earnings per share of $4.20 in two years. After two years you expect return on equity (ROE) to be a constant rate of 16% per year. Every year you expect Proctor and Gamble to payout 75% of earnings as dividends. Additionally, Proctor and Gamble currently has book value of equity per share of $21. What price should Proctor and Gamble trade at today rounded to the nearest dollar? You should assume that after year 3 the sustainable growth rate will be constant, the payout ratio will be constant, and return on equity (ROE) will be constant. Your answer should be numeric only without the dollar sign. (Example an answer of $25.10 would be entered as 25; an answer of 25.50 would be entered as 26)
Air Purifier Inc. computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,460,000, but 20 percent of this value is represented by depreciation. Its contribution margin (price minus..
DW Co. stock has an annual return mean and standard deviation of 10 percent and 31 percent, respectively. What is the smallest expected loss in the coming year with a probability of 2.5 percent?
S&P has previously given a BBB rating on On-The-Bubble Corporation. Today, On-The-Bubble Corporation’s investment banker gives the company’s CFO a frightening call. If the downgrade does occur, do you think On-The-Bubble Corporation could still fund ..
An asset has had an arithmetic return of 10.9 percent and a geometric return of 8.9 percent over the last 88 years. What return would you estimate for this asset over the next 8 years? 22 years? 29 years?
The following data regarding the market value and the costs of specific sources of capital. Source of Capital After tax cost Long term debt 8% Common stock equity 19% Market price per share of your common stock is $50 Market value of your long-term d..
The cost of the truck is $18,000 and he is approved for an 8% loan but can choose to finance the loan for either 48 or 60 months. What will be the additional cost if he chooses the 60 month term instead of 48 months? You can assume that he can afford..
You are reviewing your portfolio for which you know that 10 years ago you invested $17,850 in Amazon stock (AMZN). You are pleasantly surprised that the current value of the stock is $227,985. However, realizing that it was 10 years ago, you are inte..
Based on your research related to the regulatory requirements of futures contract risk exposure reporting, assess the adequacy of the reporting requirement. Indicate whether or not the public may be misled by management’s reporting of the financial r..
You are contemplating the purchase of a new $1,840,000 computer-based dairy cow feeding system. The system will be depreciated straight-line over its ten year life and have no value at the end of its life. you will earn $530,000 before taxes per year..
Under each plan, how high would the government have to set the tax so that it would not expect to lose money on the plan?
Equity capital can be raised through_____.
A company is trying to determine it's cost of equity using the Fama-French model. The high book to market portfolio minus the low book to market value portfolio is -2.00%.
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