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Preferred stock valuation
Farley Inc. has perpetual preferred stock outstanding that sells for $50.00 a share and pays a dividend of $4.00 at the end of each year. What is the required rate of return? Round your answer to two decimal places. %
Why is the focus on cash flow important? Why not just look at a company's 'net income' amount? Explain your thoughts in detail and give examples as to why the net income and cash flow differ.
Professor’s Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $70,000 ("present value") at age 65, the firm will pay the retiring professor $350 a month until death. If the professor’s remaining life expectancy is 20 ..
During 2014, Raines Umbrella Corp. had sales of $800,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $580,000, $90,000, and $150,000, respectively. Suppose Raines Umbrella Corp. paid out $53,000 in cash di..
Liddy Products, Inc. just issued 10-year, 8% coupon bonds at par. Outstanding Limbaugh Corp. bonds, which have a maturity of 10 years, sell at a premium to par and are viewed by investors as having the same risk as the Liddy bonds. Therefore, it must..
The real risk-free rate is 3.55%, inflation is expected to be 2.55% this year, and the maturity risk premium is zero. Taking account of the cross-product term, i.e., not ignoring it, what is the equilibrium rate of return on a 1-year Treasury bond?
HKL Co. plans a new project that will generate $ 170,000 of continuous cash flow each year for 6 years and additionally $ 250,000 at the end of the project. If the continuously compounded rate of interest is 11%, estimate the present value of the cas..
The current price of a non-dividend paying stock is $50. Use a two-step tree to value a European call option on the stock with a strike price of $48 that expires in 6 months. Each step is 3 months, the risk free rate is 5% per annum, and the volatili..
Why are sales forecasts important to developing a firm’s financial forecast? Give some examples of spontaneous and discretionary sources of financing. What are the basic elements of a cash forecast? How is a cash budget used in financial forecasting?..
Assume the stock price at expiration is $142.46. - What is your dollar profit? -- What if the stock price is $128.41?
The CFO of Ramekin Pottery Inc. is concerned about holding up the price of the company's stock. He's asked you to do an analysis starting with an estimate of the return investors are likely to require before they will invest in the firm. Prepare an e..
Marston Mfg recently declared a 4 for 1 split for its common shares. Before the split the firm's share price had risen to $600 per share and the firm's CFO felt that this high stock price inhibited trading in the firm's shares. What are the firms ear..
The owner of a small printing company is considering the purchase of additional printing equipment to expand her business. If the owner expands the business and sales are high, projected profits (minus the cost of the equipment) should be $90,000; if..
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