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XYZ's revenues this past year were $250,000 and total costs were $150,000; and both costs and revenues have been expected to remain the same in perpetuity. XYZ is an all equity firm (i.e., it has no debt), with a return on assets of 10%, and has 100,000 shares outstanding. XYZ currently pays out all its earnings as dividends (100% payout) and has been expected to do so forever. The dividends on the basis of last year's earnings have just been paid out. Unknown to the market, a team of researchers and the President of XYZ suddenly discover that the firm can introduce a range of new products and start expanding the market and increase earnings. However, this expansion will also increase costs and the company will be unable to pay out all the earnings as dividends. The President and her financial team have come up with two growth alternatives. (I) Grow earnings at an annual rate of 5% forever, but reduce the payout to 70% forever. No other financing will be necessary apart from this plowback (or reduction in payout). (II) Grow earnings at an annual rate of 8%, but with a reduction in payout to only 40%. Again no other financing will be necessary apart from this plowback. By how much will the price per share of the firm increase (in dollars) if it adopts the right strategy of growth?
Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 28%. The T-bill rate is 7%. Your client chooses to invest 60% of a portfolio in your fund and 40% in a T-bill money market fund.
briefly outline the major factorsvariables you should take into consideration in the management of a companys current
Crumpley Corporation has $5 M is current assets, zero debt, in 40% tax bracket, net income of $1 M. NI is expected to grow at a constant rate of 5percent per year. 200,000 shares outstanding and current WACC of 13.40 percent.
Alpha has an outstanding bond issue that has a 7.75% semiannual coupon, a current maturity of 20 years, and sells for $967.97. The firm's income tax rate is 40%. What should Alpha use as an after-tax cost of debt for cost of capital purposes?
consider the following cash flowsyearnbspnbspnbspnbspnbspnbsp cash flow0nbspnbspnbspnbspnbspnbspnbsp -nbspnbsp
A 4.7 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
What was Iris Inc.'s earnings before interest and taxes (EBIT)?
Translate this into average inventory (in units and dollars) before and after the change in the cash discount policy. c. Compute the following income statement. d. Should the new cash discount policy be utilized? Briefly comment.
The following information are taken from the financial statements of Prone, Inc. as of the end of the year 2007. The information are in alphabetical order.
Compute yearly interest income of every bond on basis of its coupon rate also number of bonds which Sam could buy with his= $20000.
"The Happy Auto shop has following annual information: gross sales= $700,000; net sales= $696,000; and gross profit= $448,000. What are the shop's returns and allowances and cost of goods sold?"
The Corporation had declining sales and rising expenses over the last decade and expects this trend to continue. As a result, company predicts that earnings and dividends will decline indefinitely at a rate of 4 percent per year.
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