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Conroy Consulting Corporation (CCC) has been growing at a rate of 30% per year in recent years. This same nonconstant growth rate is expected to last for another 2 years. You are also given that D0 = $2.50, and the growth rate after 2 years will be constant at 7%. The beta on firm’s stock is 2, the risk-free rate is 2%, and the market risk premium is 5%. In class, we solved for the expected dividend yield and the capital gains yield for the first year (from now to the end of this upcoming this) using the discounted dividend approach. Now, solve for the expected dividend yield and the capital gains yield for the second year (The second year starts from one year from today and ends two years from today).
Dalia’s Biomedical Supplies has a stock with a beta of 0.85 and an expected return of 10%. Assume that short-term US treasury bills are currently earning 3% and the market risk premium is 5%. assuming an equal investment in the two assets, what is th..
Stock A’s expected return and standard deviation are E[RA] = μA = 6% and σA = 12%, while stock B’s expected return and standard deviation are E[RB] = μB = 10% and σB = 20%. How would you construct a portfolio with expected return of 8% using stock A ..
Would you expect a $1 increase in a call option's exercise price to lead to a decrease in the option's value of more or less than $1?
The hospital is facing pressure from public-interest groups to control the prices it charges to the uninsured. Assume that the hospital is able through various efficiencies to cut its per-visit cost by 5%. It also negotiates a 7% increase with manage..
Explain how and why profitability ratios at small banks typically differ from those at the largest money center banks.
What would be the net annual cost of the following checking accounts? Monthly fee, $4.25; processing fee, 50 cents per check; assume checks written average to 16 per month.
A firm is considering a new project that has a cost of $1,000. Suppose, the CFO asked you to set up the decision tree to show its three most likely scenarios. The best case scenario happens with probability of 0.2, and produces three cash flows of $8..
LIS Company has $50 million in long-term debt, $75 million in shareholder’s equity [both figures are market value basis]. The cost of equity is 14%, cost of long-term debt is 12% and the tax rate is 25%. What is the weighted average cost of capital [..
Consider the following binomial option pricing problem involving an American call. This call has two periods to go before expiring. Its stock price is 30, and its exercise price is 25. The risk free rate is .05, the value of u is 1.15, and the value ..
Teresa’s manufacturing plant is destroyed by fire. The plant has an adjusted basis of $270,000, and Teresa receives insurance proceeds of $410,000 for the loss. Teresa reinvests $420,000 in a replacement plant. Calculate Teresa’s recognized gain if s..
Suppose you want to convert U.S. dollars to Indian rupees. If you have $120,000 and the exchange rate is $0.0159 per rupee, how many rupees (in millions) will you receive in the conversion?
The prime rate averages 8 percent each year. Will the firm's CFO before interest be sufficient to meet debt service requirements and other mandatory expenditures? If prime averages 8 percent, 9 percent, and 10 percent over the three years, respective..
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