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The Targaryen Corporation (TTC) commits to paying a constant dividend of $3 per share each year, in perpetuity. Suppose that another investment with the same level of systematic risk as TTC’s shares has an expected return of 15%.
a. The personal income tax rate is 0%. What is the share price of TTC?
b. Now assume that all investors must pay a 30% tax on dividends. What is the share price of TTC in this case?
c. The capital gains tax is 15%. TTC’s management makes a surprise announcement that TTC will no longer pay any dividends. Instead, TTC will use the same amount of cash it used to pay as dividends to repurchase stock (assume shares never run out). What is the price of a share of TTC now?
Suppose the 30 year mortgage interest rate rises from 3 percent to 5 percent, and simultaneously the expected rate of inflation rises from 1 percent to 4 percent. What is the approximate change in the real interest rate? In the year 2007, the Zimbab..
Eaton Electronic Company’s treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (also referred to as the required rate of return for common equity). Compute Ke (required rate of ret..
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Using the risk-adjusted discount rate approach, the firm's weighted average cost of capital is applied to projects with: Select one: a. no risk b. low risk c. normal risk d. high risk
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The principal use of an article refers to: a. the purpose for which it is to be imported. b. the use that is greater than any other single use of the article. c. the use of the components once they are fully assembled. d. any one of the above.
Ganado and Equity Risk Premiums. Maria? Gonzalez, Ganado's Chief Financial? Officer, estimates the? risk-free rate to be 3.10%?, the? company's credit risk premium is 4.40?%,the domestic beta is estimated at 1.11?, the international beta is estimated..
A SPREAD is an investment strategy that involves the simultaneously buying and selling equal number of options on the same underlying security but with different strike prices
Another investment opportunity available to your company involves the purchase of some common stock from Zorp Corporation. The growth rate on the stock is constant at 3% per year, and your company's required return on the stock would be 11%. What is ..
Now, assume that the economy enters into a recession and interest rates fall. The bond’s yield to maturity is now 5%. What’s the bond’s new price? How does the price compare with your answer in part a? Why did the bond’s value change? What’s the bond..
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