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a) Crab and Apple Co expects that next year’s earnings will be eight dollars per share (EPS1 = $8). The company normally pays out 80% of its earnings in dividends to its shareholders and plans to continue that practice. The company’s financial staff expects that reinvested funds used in its capital spending program can earn a return on equity of 25%. Given the company’s level of risk, shareholders demand a 20% required rate of return. Please help Mr. Gordon to determine the stock price.
b) News Flash. The company just announced that it is changing its dividend policy and the payout ratio next year will be 30%. What happens to the stock price?
Kazeem Systems Corp has a beta coefficient of 1.7 and a required rate of return of 15%. The market risk premium is currently 5%. If the inflation premium increases by 2 percentage points, and Kazeem acquires new assets which increase its beta by 50%,..
It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. It is expected that the lockbox system will red..
What is the main premise underlying the pecking order theory? What is the “pecking order” of sources of financing? Why is dividend policy so important to this theory? How does the concept of financials slack relate to this theory?
One step in assessing the quality of earnings is to look for red flags.
The Whisenhunt Company has ratio of long-term debt to long-term debt plus equity of .37 and current ratio of 1.5. What is the amount of firm’s net fixed assets
A stock has the following year end prices and dividends. What are the arithmetic and geometric average annual returns for the stock over this time period? What is the standard deviation of returns (use the arithmetic average)?
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a $2.6 per share dividend in 15 years, and you expect dividends to grow perpetually at 3.6 percent per year thereafter. If the discount rate is 13 perc..
Both stocks have the same reward-to-risk ratio. What is the risk-free rate?
In October 2012, the average house price in the United States was $233,600. In October 2003, the average price was $287,600. Required: What was the annual change in the average selling price?
Mark Weinstein has been working on an advanced technology in laser eye surgery.
When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh flowers on her grave every Sunday as long as he lived. The week after she died in 1962, a bunch of fresh flowers that the former baseball player thought appropriate for the star c..
Find the annual percentage yield for an investment at the following rates.
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