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Eastern Electric currently pays a dividend of about $1.72 per share and sells for $31 a share.
a. If investors believe the growth rate of dividends is 3% per year, what is the opportunity cost of capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Cost of Capital %
b. If investors' opportunity cost of capital is 10%, what must be the growth rate they expect of the firm?(Do not round intermediate calculations. Round your answer to 2 decimal places.)
Growth rate %
c. If the sustainable growth rate is 7% and the plowback ratio is .5, what must be the return on equity ROE? (Round your answer to 2 decimal places.)
ROE %
An investment project has annual cash inflows of $9,000, $8,500, $8,000, and $7,300, and a discount rate of 10 percent. If the initial cost is $23,700, the discounted payback period for these cash flows is _______ years.
When the economy goes into a recession, do we expect spreads between corporate bonds and treasuries to widen or contract? Why?
Which statement is INCORRECT given the following Treasury quotes? The dealer is willing to sell this bond to you for 150.750% of par.
If a firm has a beta of 90% and a market risk premium of 7% and T-bills yield 3.5%. The most recent dividend was $1.80 per share and dividends are expected to grow at a 5% annual rate indefinitely. If the stock sells for 47% per share, what is your b..
In each of the theories of capital structure, the cost of equity increases as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down? After all, aren't financial managers supposed ..
The risk-free rate of return is 5%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.50 and g = 4%, at what price should a share..
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Please show your work. Ms. Ayala will receive $12,000 a year for thr next 20 years from her retirement fund. If a 6% interest rate is applied, what is the current value of her retirement fund? How much would you have to invest today to receive $50,00..
The Ensyder Nursing Home (ENH) is a zero growth firm with an EBIT of $250,000 and a corporate tax rate of 40 percent. Suppose that the present value of financial distress costs is estimated to be $800,000, and that at a debt level of $1 million, ENH ..
Pilot Plus Pens is deciding when to replace its old machine. The machines current salvage value is $2.26 million. Its current book value is $1.46 million. If not sold, the old machine will require maintenance costs of $851,000 at the end of the year ..
Suppose that the parents of a young child decide to make annual deposits into a savings account with the first deposit on the 5th birthday and the last on the 15th birthday.
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