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Modern Furniture Company had finally arrived at the point where it had a sufficient excess cash flow of $4.8 million to consider paying a dividend. It had 3 million shares of stock outstanding and was considering paying a cash dividend of $1.60 per share. The firm's total earnings were $12 million, providing $4.00 in earnings per share. The stock traded in the market at $88.00 per share.
However, Al Rosen, the chief financial officer, was not sure that paying a cash dividend was the best route to go. He had recently read a number of articles in The Wall Street Journal about the advantages of stock repurchases and before he made a recommendation to the CEO and board of directors, he decided to do a number of calculations.
Your company's weighted average cost of capital is 11 percent. it is planning to undertake a project with an internal rate of return of 14%, but you believe this project is not a wise investment. What logical arguments would you use to convince your ..
What is the present value of 100 shares of stock that will pay an annual dividend of $5 per share and will be sold in 8 years for $80 per share? Assume that the investor receives the last dividend on the same day that the stock is sold. Also assume t..
Describe a method for testing whether interest rate parity exists. Why are transaction costs, currency restrictions, and differential tax laws importan
After six months of study, much political arm wrestling, and some serious financial analysis, Dr. Martin Starr, president of Southwestern University, had reached a decision. To the delight of its students, and to the disappointment of its athletic bo..
You were recently hired as CFO to improve the performance of Dennis Systems, which is highly profitable but has been experiencing cash shortages due to its high rate of growth. As one part of your analysis, you want to determine the firm's cash conve..
What are the economic functions that financial intermediaries perform that benefit society? Be sure to explain how depository intermediaries, like banks, differ from other financial institutions such as investment banking firms or securities brokerag..
Birds of a Feather have 10-year bonds outstanding that carry an annual coupon of 8 percent. The bonds mature in 7 years and are currently priced at 110 percent of face value. What is the firm's pretax cost of debt?
The Unlimited, a national retailing chain, is considering an investment in one of two mutually exclusive projects. The discount rate used for Project A is 12 percent. Further, Project A costs $15,000, and it would be depreciated using MACRS. What ris..
A 5-year maturity 6% coupon rate bond is selling to yield 8%. The bond pays interest semi-annually. One year later, interest rates decrease from 8% to 5%. What is the current price of the 5-year maturity 6% coupon bond selling to yield 8%?
If the equity requirement is 12 percent and a mortgage can be obtained for 25 years at 7 percent. If the loan to value ratio is 70 percent (equity is 30 percent), what is the value of a property that generates $125,000 in net operating income.
Crossdyme Corporation issued 30-year, noncallable, 8.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 10%. What is the current price of the bonds, given that they now have 29 years to..
A share of Ryan & Co. common stock is expected to pay a dividend of $2.40 ( D 1 ) at the end of the coming year. If the expected long-run growth rate for this stock is 6%, and if investors require a 18% rate of return, what is the present value of th..
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