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Suppose that a firm’s recent earnings per share and dividend per share are $2.90 and $1.90, respectively. Both are expected to grow at 9 percent. However, the firm’s current P/E ratio of 28 seems high for this growth rate. The P/E ratio is expected to fall to 24 within five years.
Calculate the present value of these cash flows using an 11 percent discount rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Present value $
Your portfolio is diversified. It has an expected return of 10.0% and a beta of 1.10. You want to add 500 shares of Tundra Corporation at $30 a share to your portfolio. Tundra has an expected return of 14.0% and a beta of 1.30. The total value of you..
Suppose you sell the stock at a price of $37. What is your return? What would your return have been had you purchased the stock without margin?
What is the combined present value of $5,000 to be received in 5 years, $15,000 to be received in 10 years, and $25,000 to be received in 15 years with an interest rate of 9.0%? Your parents have decided they want to put money away today so that begi..
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $15 million, of which 80% has been depreciated. The used equipment can be sold today for $3.75 million, and its tax rate is 30%. What is the equipment..
What is the required rate of return if the market risk premium increased to 20% because of the increase in investors' risk aversion assuming that the return on the risk-free asset remains the same as in question 2 above.
Assume a clinical laboratory is considering a new test. Here are the key assumptions: annual fixed direct costs = $20,000, annual overhead allocation = $10,000, variable cost per test = $5, and expected volume = 5,000 tests. What price should be set ..
Green Valley company bonds have a 10.66 percent coupon rate. Interest is paid semi annually. The bonds have a par value of $1000 and will mature 16 years from now. Compute the value of Green Valley company bonds if investors' required rate of return ..
A small furniture manufacturer produces tables and chairs. Each product must go through three stages of the manufacturing process: assembly, finishing, and inspection. Each table requires 3 hours of assembly, 2 hours of finishing, and 1.5 hour of ins..
As of today, the First ECON Bank of Arlington currently holds: If we assume that that entire amount of the transaction deposits is a subject to the legal 10% reserve requirement, please indicate the required course of the bank’s action to manage its ..
Three years ago you purchased a corporate bond that pays 6.40 percent annual interest. The face value of the bond is $25,000. What is the total dollar amount of interest that you received from your bond investment over the three-year period? (Do not ..
A prospectus for a bond issue will normally list both the price to the public and the proceeds to the company. Capital rationing may lead to non-optimal investment decisions.
What is the meaning of the following sentence: "Amortization affects the amount of interest expense." How does amortization of premium affect the amount of interest expense? How does amortization of discount affect the amount of interest expense?
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