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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 2 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 17 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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Powell Motors Inc. is considering investing in a project in which the risk is greater than the firm's current risk based on any method for assessing risk. Which of the following should management do when evaluating this project? A firm's after-tax co..
How is beta affected by mergers in the airline industry? For example, is the beta of merged American Airlines/U.S. Airways higher, lower, or unchanged from their betas as stand-alone companies? Prior to their merger in December 2013, the beta of Amer..
The government of Washlovia wants to impose a tax on clothes dryers. - Where will the tax inefficiency be greater? Explain.
In this essay, we are going to discuss the issues of financial management in a non-profit organisation.
Suppose you deposit $1000 into a savings account that pays 8 percent. If the bank compounds interest annually, how much will you have in your account in 4 years? What would your balance be in 4 years if the bank used quarterly compounding rather than..
Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 9 percent. What will these bonds sell for at issuance?
Compute the taxable gain and tax due for each of the following cases, assuming that your tax bracket is 28 percent. Assume 100 shares and 100 calls.
A five-year project has an initial fixed asset investment of $290,000, an initial NWC investment of $25,000, and an annual OCF of - $35,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required r..
You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive $20,000 at the end of each year for the 30 years between retirement and death. How large a fund will you need when you retire in 20 years to provide ..
If you deposit $9,000 in a bank account that pays 8% interest annually, how much will be in your account after 5 years? What is the present value of a security that will pay $35,000 in 20 years if securities of equal risk pay 3% annually?
You have your choice of two investment accounts. Investment A is a 14-year annuity that features end-of-month $1,350 payments and has an interest rate of 7.2 percent compounded monthly. Investment B is a 6.7 percent continuously compounded lump sum i..
Based on the information below, calculate the weighted average cost of capital. Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 8%. They had 25-year terms and $1,000 face ..
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