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You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You expect this stock to have a growth rate of 15% for the next 3 years, resulting in dividends of D1=$2.3, D2=$2.645, and D3=$3.04. The long-run normal growth rate after year 3 is expected to be 10% (that is, a constant growth rate after year 3 of 10% per year forever). If you require a 14% rate of return, how much should you be willing to pay for this stock?
Megan owns a 10-year bond with a par value of $1,000 and a coupon rate of 8%. The current market price of this bond is $1,194. If market interest rates rise, will the market price of Megan’s bond change? If so, in which direction? Explain. Calculate ..
The MerryWeather Firm wants to raise $15 million to expand its business. To accomplish this, the firm plans to sell 16-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 8.4 percent. What is the minimum number of bonds the f..
It is noted that initially, leverage can be the least expensive form of capital. However, if potential lenders feel a firm is overly leveraged, they may charge a punitive rate, or refuse to lend all together. This can be disastrous if a firm needs to..
In 2004, IBM's financials reported financial debt of $22,927. What was its financial-debt-to-capital ratio, in book value and market value?
Oberon, Inc., has a $40 million (face value) 10-year bond issue selling for 97 percent of par that pays an annual coupon of 8.15 percent. What would be Oberon’s before-tax component cost of debt?
How many years will it take to payback an investment of $100,000 given annual end-of-year cash flows of: $25,000, $30,000, $35,000, $40,000, $55,000? (Use nominal dollars rather than discounted dollars in the payback calculation.)
Suppose the prospective buyers of houses become more optimistic about the future prices of houses while at the same time existing owners of houses become more pessimistic about the future prices of housing. Explain what you think will happen to the c..
Two traffic signal systems are being considered for an intersection. One system costs $34000 for installation and has an efficiency rating of 80% requires 30 kW power (output), incurs a user cost of $.21 per vehicle, and has a life of 12 years. At le..
You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already dec..
You placed $7,820 in a savings account today that earns an annual interest rate of 6.75 percent, compounded semiannually. How much will you have in this account at the end of 37 years? Assume that all interest received at the end of the period is rei..
Corporate headhunters have been known to raid other companies of their top talent to fill vacant or new positions for their clients. Is it ethical to contact the CEO of one company and lure him or her to join the management team of another company?
Please share your understanding of the relationships between sales and expenditures. You are encouraged to discuss all of the marketing, advertising, promotions, and any other expenditures related to sales.
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