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Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D1 = D0(1 + g) = D0(1.50)] this year and 25% the following year, after which growth should return to the 6% industry average. If the last dividend paid (D0) was $2.25, what is the value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations.
Explain the difference between observed market prices and intrinsic (unobservable) prices. Explain what makes a market “fair” Define operational efficiency. Define informational efficiency (speed of info, accuracy of info, and accuracy of response to..
This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real Option chapter. Suppose that the value of the hotel is not $8 million but instead is $9.5 million if the city is successful in obta..
You purchase a bond with an invoice price of $1152.32. The bond has a coupon rate of 8.39 percent, and there are 4 months to the next semi annual coupon date. What is the clean price of the bond?
When would the coefficient of variation be preferred over the standard deviation for comparing two risky stocks in isolation? Fully explain your answer.
The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.20 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 10 percent on the company's stock. What ..
There is a basic trade-off between efficiency and equity because A. Income redistribution tends to reduce incentives for efficient behavior. B. People who are efficient dislike equity. C. Pareto improvements can only be made by sacrificing efficiency..
Finance Micro Spinoffs Inc. issued 10-year debt a year ago at par value with a coupon rate of 5%, paid annually. Today, the debt is selling at $1,210. If the firm’s tax bracket is 20%, what is its percentage after-tax cost of debt? Assume a face valu..
Boyd Company sold a futures contract (one) on Treasury bonds that specified a price of 93-00. When the position was closed out, the price of the Treasury bond futures contract was 94-20. Did interest rates increase or decrease? How do you know? What ..
The earnings, dividends, and common stock price of Carlos Enterprises are expected to grow a 6 percent per year in the future. Carlos’ common stock sells for $27.50 per share, its last dividend was $3.00 and it will pay a dividend of $3.18 at the end..
You are building a pipeline which will generate its first annual cash flow of $2m exactly 5 years from today. As it ages, the volume it transports, and hence the cash flows it creates, will decline by 3% per year. Exactly 27 years from today, this pi..
Four economic classifications of mergers are (1) horizontal, (2) vertical, (3) conglomerate, and (4) congeneric. Explain the significance of these terms in merger analysis with regard to:
Assume that you had a 1-year T-bond that yields 1.8% and a 2-year T-bond that yields 2.55%. From this information you could determine what the yield on a 1-year T-bond one year from now would be. If the pure expectations theory is correct, what is th..
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