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The next year earnings of ABC Company will be $6 per share. ABC Company distributes 50% of its earnings (as dividends) and retain the rest in the company for the first 3 years. After that (starting from the beginning of 4th year), the firm will retain 30% of its earnings in the company, and it will continue to do that forever after. Suppose that the ROE of ABC Company is always 20%, and the CAPM required return for stock ABC is 14%. Note that earnings grow at the same rate as dividends. Based on all the information, what is the intrinsic value of ABC stock today?
Assume for simplicity that the contract between firm 1's investors and the entrepreneur can be contingent on the realization of ρ0. Show that at the optimal contract assets are resold.
An entrepreneur needs funds for a project. She has funds of her own, but enough to cover the required investment of $100. If the entrepreneur doesnt misbehave, the project will succeed with probability .9, yielding a gross return of 120 in one year. ..
A short-term financial decision based on an MNC management's expectation that the local foreign currency will appreciate may be A. increasing local customers' accounts receivable and increasing local notes payable. B. increasing local accounts receiv..
A business is considering purchasing a machine that is projected to yield cash, savings of $1,000 per year over a 10-year period. Using a 12 percent discount rate, calculate the present value of the savings. (Assume that the cash savings occur at the..
Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 63,400 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $..
Dennis earns $55,000 in the current period and will earn $85,000 in the future. What is the minimum interest rate that would allow Dennis to con- sume $180,000 in the future period? What is the maximum interest rate that would allow Dennis to con- su..
A firm purchases materials on terms of 3/15, net 40 and it can borrow the funds from a bank at an APR of 30%. Should the firm use the bank loan by taking the discount or the full credit period by giving up the discount? Show your work including nomin..
Using the free cash flow valuation model to price an IPO. Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $12.50 per share. Although you are very much interested in owning the company, you are concerne..
The following facts are presented on an opportunity to invest in Machine A: Cost of equipment is $200,000. The machine has an expected 4-year useful life; it will be depreciated according to the 3-year Modified Accelerated Cost Recovery System (MACRS..
Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 38%. The T-bill rate is 4%. Stock A 22 % Stock B 31 % Stock C 47 % 1.Your client decides to invest in your risky portfolio a proportion (y) of..
You are going to pay $800 into an account at the beginning of each of 20 years. The account will then be left to compound for an additional 20 years. At the end of the 41st year you will begin receiving perpetuity from the account. If the account pay..
What interest rate would legally have to be quoted? What is the effective annual rate?
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