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A share of stock with a beta of .78 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 5%, and the market risk premium is 8%
a. Suppose investors believe the stock will sell for $60 at year-end, is the stock a good or bad buy? What will investors do?
the stock is a (good or bad) buy and the investors (will invest or will not invest)
b. At what price will the stock reach an "equilibrium" at which it is preceived as fairly priced today? (Do not round intermediate calcualtions. Round your answer to 2 decimal places)
stock price $_______________
Over the last twenty years there has been considerable consolidation in the confectionary business (e.g the acquisition of row tree PLC by nestle SA in 1988 and Cadbury by Kraft in 2010). you have a suspicion that a large food manufacturer might try ..
Assume you invest in the Japanese equity market and have a 25 percent return (quoted in yen). However, during the course of your investment, the yen declines versus the dollar. By what percentage could the yen decline relative to the dollar before al..
Harold is going to loan Maude $50,000 using a promissory note and a mortgage. Which one is the "mortgagor"? Which one is the "mortgagee"? Why is a mortgage needed if you already have a promissory note? Who is the beneficiary in a trust deed? Who is t..
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Benson Bakeries generated net income of $250,000 on total revenues of $525,000 this year. At year end, the company had accounts receivable of $35,000, accounts payable of $52,500, inventory of $58,000, cash of $50,000, and short-term notes payable of..
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When advising a non- profit firm about a capital stricture approach, discuss which approach is more relevant- a. optimal capital structure (static-trade-off approach); or b. pecking order approach. in your response, briefly define each approach and i..
Regarding takeover defenses, what has been the general impact of legislation? What has been the impact of court decisions? According to Jensen’s studies (1988), what is the result of the broad application of the business judgment rule by the courts?
The current price of a stock is $14. In 6 months, the price will be either $20 or $12. The annual risk-free rate is 6%. Find the price of a call option on the stock that has an strike price of $13 and that expires in 6 months.
What is the main concept of Ordinary Least Square (OLS) technique of forecasting?
Johnson Products earned $3.10 per share last year and it paid out $.75 dividend. The company’s ROE is 16%. a) Calculate the dividend payout ratio; b) Calculate the sustainable growth rate of the company.
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