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Your firm has had steady earnings for many years but it has resisted paying dividends. It typically uses its earnings to finance replacement of its worn out assets, thus saving the cost of borrowing money to do this. Its stock price has not risen much in recent years. The Drucker-educated consultant tells the CEO to start paying a modest dividend out of earning. "The borrowing costs you will incur by occasionally having to raise money with debt will be outweighed by a subtle benefit." What subtle benefit is the consultant referring to?
Take the current spot exchange rate to be $1.3194/£. Suppose that the expected inflation over the coming year is 0.75% in the UK and 2.25% in the United States. What is the expected value for the spot exchange rate a year from now, according to relat..
A investor has purchased 10-year bonds, with a face value of $11,000. Interest at 8% is paid quarterly. If she desires to earn 12% nominal interest (compounded quarterly), what would the purchase price have to be?
Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm's capital structure, it will not affect its overall required rate of return. The basic rationale for any financial merger i..
When analyzing the “Spread”, the valuator includes firms with outlying values because they are part of the industry.
Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. - What would happen to reported profit and to net cash flow?
A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a rate of 15 percent rate for the next 3 years. Afterwards, a more stable 6 percent growth rate can be assumed. If a 10 percent discount rate is ..
How do societal expectations affect corporations and their initiatives? Give an example of a company that had to alter a product or service because of society's concerns about its health, moral, or social impacts.
What is the minimum of shares you need to own to ensure that you can elect at least one directory if the company has cumulative voting?
sensitivity of OCF to changes in the variable cost figure? Calculate the base-case operating cash flow and NPV.
Determine the amount you would be willing to pay for a $1,000 par value bond paying $80 interest each year and maturing in 12 years, assuming you wanted to earn a 9% rate of return.
Thress Industries just paid a dividend of $1.00 a share (i.e., D0 = $1.00). The dividend is expected to grow 5% a year for the next 3 years and then 12% a year thereafter. What is the expected dividend per share for each of the next 5 years?
Discuss how these financial theories allow an organization to better identify and utilize financial data for its decision-making.
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