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Phoenix Industries has pulled off a miraculous recovery. Four years ago it was near bankruptcy. Today, it announced a $1 per share dividend to be paid a year from now, the first dividend since the crisis. Analysts expect dividends to increase by $1 a year for another 2 years. After the third year (in which dividends are $3 per share) dividend growth is expected to settle down to a more moderate long-term growth rate of 6%. If the risk-free interest rate is 6%, the risk premium is 6%, and the stock's beta is 2.0. what must be its stock price?
Given that exercise price is $75, call option premium is $3.5, put option premium is $1, both options have a time to maturity of 32 days, and the risk free rate is 5% p.a., please show how you could create a "synthetic stock" that could serve as the ..
Suppose you observe the following situation: Security Beta. peat co=1.200 Expected Return =12 ., Re-Peat Co. Beta = .75 and Expected return=10.5 .Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the mark..
Trigen Corp. management will invest cash flows of $1,232,048, $704,110, $1,253,154, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 7.45 percent, what is the future value o..
Leila Liverpool is looking into the possibility of buying several coin-operated vending machines and placing them in the local hospitals. Each machine costs $3200, which she will depreciate on a straight-line basis over 10 years. Assume that the inco..
We are evaluating a project that costs $1,180,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. alculate the base-case cash flow and NPV. What is the sensitivity of NPV..
Evco, Inc., has a current price of $50 and will pay a $2 dividend in 1 year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the dividend in 1 year in order to justify its current price?
Suppose Cold Goose Metal Works Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,225,000. Cold Goose Metal works Inc.'s weighted average cost of capital is 8%, and project Beta has th..
_____ is often used by manufacturers to significantly lower their production cost. It gives them the ability to produce in a level production mode year round, rather than running two or three shifts at the peak of their demand cycle.
Woodpecker, Inc., stock has an annual return mean and standard deviation of 13.0 percent and 50 percent, respectively. What is the smallest expected loss in the coming month with a probability of 2.5 percent?
Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $60,000 at the end of each..
Mr. Long runs a chain of outlet stores called Cheap Ware (CW). Currently CW uses only equity capital. Mr. Long was approached by representatives from Lenders Inc. who have pointed out to him that his cost of unlevered equity capital is 11% and the co..
A prestigious investment bank designed a new security that pays a quarterly dividend of $5.00 in perpetuity. The first dividend occurs one quarter from today.
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