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Company ‘1063 has a current period cash flow of $1.3 million and pays no dividends. The present value of the company’s future cash flows is $17 million. The company is entirely financed with equity, and has 400,000 shares outstanding. Assume the dividend tax rate is zero. i. What is the share price of the Company ‘1063 stock? ii. Suppose the board of directors of Company ‘1063 announces its plan to pay out 50 per cent of its current cash flow as cash dividends to its shareholders. How can Tom Dixon, who owns 1,000 shares of Company “1063” stock, achieve a zero payout policy on his own?
DeCento's is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a ze..
Discuss how the portfolio beta compares to your own willingness to take risks. Discuss whether you would rather hold an individual stock or a portfolio of stocks. please properly cite your work.
You have been asked to calculate the cost of capital for a company with the following information. The company has $7,500,000 in face value bonds, trading at 96.5% of face value. The YTM on these bonds is 5.75%. The equity beta is 1.75, the expected ..
Gardial GreenLights, a manufacturer of energy efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $10 million investment in new machinery.
Explain how purchase of the apple press might affect the company's revenue goals. Based on this information, explain whether Anthony's Orchard should invest in the apple press.
McFann Co. has two divisions, L and H. Division L is the company's low-risk division and would have a WACC of 8% if it were operated as an independent company. On what grounds do you base your accept-reject decision? Division H's project should be ac..
Tall Tree Timber has net income of $167,000 for the year with 60,000 shares of stock outstanding. Big Trees is a similar firm with similar growth opportunities and it has 75,000 shares of stock outstanding with a market price of $32.20 a share and ea..
MBM estimates its expansion cost at $18.63 million and wants to fully fund upfront. Management has decided to save $1.1 million a quarter for this purpose. The firm earns 6.25 percent, compounded quarterly, on its savings. How long does the firm have..
David Salter has a PAP with coverage of $25,000/$50,000 for bodily injury liability, $25,000 for property damage liability, $5,000 for medical payments and a $500 deductible for collision insurance. How much will his insurance cover in the following ..
Scare Train, Inc. has the following balance sheet statement items; current liabilities of $875,962; net fixed and other assets of $1,921,620; total assets of $3,463,330; and long-term debt of $602,676. What is the amount of the firm’s net working cap..
You have just purchased a five- year maturity bond for $ 10,000 par value that pays $ 610 in coupon interest annually ($ 305 every six months). You expect to hold the bond until maturity. Calculate your expected total return if you can reinvest all c..
Stock A has a beta of .2, and investors expect it to return 3%. Stock B has a beta of 1.8, and investors expect it to return 11%. Use the CAPM to calculate the market risk premium and the expected rate of return on the market. What is the market risk..
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