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The Alpha Tool Corporation has never paid a dividend, but the new company president has announced that the firm would pay its first dividend exactly two years from now. That dividend is expected to be $2 per share. It is anticipated that this dividend will grow by 15 percent for the following three years, and by 10 percent for the two years after that.
No explicit dividend forecast is available beyond that point in time, although the firm is expected to continue to pay some dividends every year. The stock's current price-to-earnings (P/E) multiple is 15 times. The company (and investigators) expect the P/E multiple to remain constant for the foreseeable future. Earnings per share at the end of year 6 are expected to be $7.
The company's marginal tax rate is 40 percent and the firm has a capital structure consisting of 40 percent debt (at a pretax cost of 20 percent) and 60 percent common equity. If you require a 15 percent rate of return on this stock, how much would you pay for one share of stock today?
Discuss how credit cards offer incentives to use the cards. How else might credit card companies reward cardholders with excellent credit ratings?
Sterling, Cooper, Draper, Price would like to go public to raise $58 million to support expected growth. Their investment bank charges the following: 7.7% underwriting spread for a firm commitment. The underwriter feels that the IPO will be priced at..
Company Z raises 30 on 40 with VC taking convertible preferred with a conversion price equal to the current share price implied by post money valuation. What is the value at exit that would make the VC want to convert into common stock?
Use Matlab to write a computer code which takes as inputs: and which calculates the European option price as well as the composition of the replicating portfolio at every node of the tree.
Edwards Construction currently has debt outstanding with a market value of $99,000 and a cost of 8 percent. The company has EBIT of $7,920 that is expected to continue in perpetuity. Assume there are no taxes. What are the equity value and debt-to-va..
On average, it costs an organization six times more to sell to a new customer than to sell to an existing customer. As the co-owner of a medium-sized sports equipment distributor, you have recently been notified that sales for the past three months h..
Under the assumptions of Modigliani-Miller, what is the effect on the stock price of an announcement of a $1 special dividend to be paid in 6 months? Find the new stock price after the ex-? dividend date.
A Treasury bill has a bid yield of 1.93% and an ask yield of 1.89%. The bill matures in 200 days. Assume a face value of $1,000. What is the least you could pay to acquire a bill?
Start Up Plc is expected to pay a dividend of 4.75 per share at the end of year 1 and these dividends are expected to grow at a constant rate of 3.5% per year forever. If the required rate of return on the stock (and all stocks of the same risk class..
Change in Cost of Capital. Assume that Naperville Co. will use equity to finance a project in Switzerland, while Lombard Co. will rely on a dollar-denominated loan to finance a project in Switzerland, and Addison Co. will rely on a Swiss franc-denomi..
Assuming six-month euro interest rates were 5.415%, what is the implied six-month dollar rate? - What arbitrage opportunity existed? What does a potential arbitrageur need to transact to exploit this opportunity?
The operating cost of a new machine is $500 for the first year. Starting the second year, the operating cost increases by $200 per year for the next 10 years. Calculate the equivalent annual operating cost of the machine. What will be the present and..
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