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In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.23. The dividends are expected to grow at 18 percent over the next five years. The company has a payout ratio of 30 percent and a benchmark PE of 18. The required return is 14 percent. What is the stock price today?
Assume that on a particular day, the DJIA opened at 11,960.09. The divisor at that time was .132550914. What would the new index level be if all stocks on the DJIA increased by $1.00 per share on the next day?
Peterson Packaging Incorporated does not currently pay dividends. The company will start with a $0.50 dividend at the end of year three and grow it by 10% for each of the next six years until it nearly reaches $1.00. After six years of growth, it wil..
Pluto's has 14,000 shares of stock outstanding with a par value of $1 per share. The market value is $39.60 per share. The balance sheet shows $522,500 in the capital in excess of par account, $14,000 in the common stock account, and $429,700 in the ..
Your employer contributes $75 a week to your retirement plan. Assume that you work for your employer for another 20 years and that the applicable discount rate is 7.5 percent. Given these assumptions, what is this employee benefit worth to you today?
Using the straight-line depreciation method, calculate the annual depreciation for year 3.
How much would your friend receive from the sale of the promissory note?
Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $1.8 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of the cu..
A 100% equity firm has a marginal tax rate of 25 percent. By how much would the firm’s value increase if it issued $5,000,000 in bonds with a 4% coupon and a yield-to-maturity of 3.8%?
Explain how a private equity firm can increase the value of a company with no debt financing by buying the company and increasing its financial leverage, i.e., changing its capital structure.
Compute the PI statistic for Project Z if the appropriate cost of capital is 7 percent.
We have the Fitzpatrick bond which has a convexity of 30, duration of 4, a ytm of 12% and a maturity of 25 years. The central bank is injecting huge liquidity, and there is no fear of inflation. If the yields alter by 100 basis points, what would the..
What is the expected rate of return to equity-holders if the firm has a 35% tax rate, a 10% rate of interest paid on debt, a 15% WACC, and a 60% debt to value ratio?
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