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The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 3 percent. Suppose the capital gains tax rate is zero, whereas the income tax rate is 30 percent. Gecko has an expected earnings growth rate of 18 percent annually, and its stock price is expected to grow at this same rate. The aftertax expected returns on the two stocks are equal (because they are in the same risk class).
What is the pretax required return on Gordon’s stock?
Suppose Johnson? & Johnson and the Walgreen Company have the expected returns and volatilities shown? below, with a correlation of 21.7%. calculate: The expected return. The volatility? (standard deviation). The expected return. The expected return o..
A large retailer obtains merchandise under the credit terms of 1/10, net 40, but routinely takes 65 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..
Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10.5%. The bonds have a yield to maturity of 8%. What is the current market price of these b..
Admiral Trust Company makes an amortized loan of $47,000, to be repaid by annual end-of-year payments of $4,675 for eighteen years. In order to replenish its capital, the company will make level annual payments into a sinking fund account earning 5% ..
Dublin Medical (DM), a large established corporation with no growth in its real earnings, is considering acquiring 100% of the shares of Arlington Corporation, a young firm with a high growth rate of earnings. What is the expected gain from acquisiti..
If a shareholder works for the business then he:
A 3-year, $1000-face value bond promises to make annual interest payments of $84 at the end of each year. At the end, the principal of $1000 will also be repaid. If investments of similar riskiness yield 7.4%, what is the maximum you would pay for th..
Show how the balance sheet and income statement change in each of the following scenarios. - Also calculate the new ROA, ROE, and rate-sensitivity gap.
If you invest 40 percent of your money in IBM, 30 percent in LUV, and 30 percent in ODP, what is your portfolio's beta?
Blazingame inc.'s capital components have the following market value: debt 35,180,000, preferred stock 17,500,000, common equity 48,350,000. calculate the firm's capital structure and show the weights that would be used for a weighted average cost of..
What is the future worth (in Year 8) of $20,000 deposited at the end of Year 3 plus $20,000 deposited at the end of Year 5, and $20,000 deposited at the end of Year 8 at an interest rate of 6% per year
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