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Nonconstant Growth Stock Valuation
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $0.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 70% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 4% per year. If the required return on the stock is 18%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Round your answer to the nearest cent. Do not round your intermediate computations.
Bond Yield and After-Tax Cost of Debt A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $614.24. The company's federal-plus-state tax rate is 35%. What is the firm's after-tax component..
Which of the following are included in current liabilities?
Under the terms of an interest rate swap, CAT Financial has agreed to receive 12% per annum and to pay three-month LIBOR in return on a notional principal of $200 million with payments being exchanged every three months. The swap has a remaining life..
A mortgage broker is offering a $279,000 33-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5.5 percent APR interest rate. After the second year, the mortgage interest rate charg..
If you save a constant percentage of your salary, what percentage of your salary must you save each year?
Consider a bond paying a coupon rate of 11.25% per year semiannually when the market interest rate is only 4.5% per half-year. The bond has three years until maturity. Find the bond's price today and six months from now after the next coupon is paid.
What does the following statement mean? Do you agree with the following statement that describes Modigliani and Miller's work? "In the absence of taxes, bankruptcy costs and asymmetric information, and in an efficient market, the value of the firm is..
Filer Manufacturing has 9 million shares of common stock outstanding. The current share price is $88, and the book value per share is $7. The company also has two bond issues outstanding. What are the company's capital structure weights on a book val..
A Treasury bond is quoted as 99:18 asked and 99:09 bid. What is the bid-ask spread in dollars on a $5,000 face value bond?
You shorted a futures contract on three-month Treasury bills. The quoted futures price when you shorted is 98.05. You hold the futures contract to maturity date and deliver the three-month Treasury bill. How much will you receive in exchange of the T..
High-End Fashions, Inc., bought a production line of ankle-length skirts last year at a cost of $500,000. This year, however, miniskirts are hot in the market and ankle-length skirts are completely out of fashion. How should the company treat the cos..
The Vinyard recently paid a $2.38 annual dividend on its common stock. This dividend increases at 1.75 percent per year and currently sells for $40.15 a share. What is the rate of return? You have $100,000 saved today and plan to withdraw $8,000 a ye..
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