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Ecology Labs, Inc., will pay a dividend of $6.40 per share in the next 12 months (D1). The required rate of return (Ke) is 14 percent and the constant growth rate is 5 percent.
For parts b, c, and d in this problem all variables remain the same except the one specifically changed. Each question is independent of the others.
a.) Compute P0.
b.) Assume Ke, the required rate of return, goes up to 18 percent; what will be the new value of P0?
c.) Assume the growth rate (g) goes up to 9 percent; what will be the new value of P0? Ke goes back to its original value of 14 percent.
d.) Assume D1 is $7.00; what will be the new value of P0? Assume Ke is at its original value of 14 percent and g goes back to its original value of 5 percent.
Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 6.5 percent. Assume semi-annual compounding.
Determine the maximum loan taken by an employee of a C corporation.
Lambardi sells in a mix of 2 units of A, 3 units of B and 5 units of C. What is the weighted average contribution margin per unit for Lambardi?
The following questions are designed to test your ability to apply the concepts and techniques covered in the course. Answer them as fully as possible, identifying each by number. Each answer should be 3-4 pages in length.
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