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Golden Inc. is considering shifting its capital structure by substituting debt in the capital structure for common stock. At the debt ratio of 30%, the firm estimates that te average earnings per share (EPS) would be $3.12 and the standard deviation of EPS would be $2.83. If the marketplace has assigned the following required rate of returns to risky EPSs, what would be the stock price at this debt ratio level? (Assume the zero-growth for the firm's earnings)
Coefficient of variation of EPS Estimated required rate of return
0.74 16%
0.78 18%
0.83 21%
0.91 24%
What is the present value of the following annuity? 4837 every quarter year at the end of the quarter for the next 13 years, discounted back to the present at 8 percent per year, compounded quarterly?
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A drawback to the historical approach of estimating an asset’s expected return is:
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