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What are alternative ways in which investors can receive a cash return from their investment in the equity of a company?
From a tax standpoint, which of these would be preferred, assuming that investors pay a 35 percent tax rate on dividends and a 15 percent tax rate on capital gains?
What if investors faced the same 15 percent tax on income and capital gains?
What are the pros and cons of paying out cash dividends?
Consider a 1 year European call option with a strike price of $120. The spot stock price is $110, its volatility is 30% and it pays a 2% annual dividend yield, continuously compounded. Without using either the Black-Scholes-Merton model or the binomi..
The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its 1-year coupon debt is $200 million. The volatility (σ) of Wilson Dover's total value is 0.60, and the risk-free rate is 5%. Assume that N(d1) = 0.9720 a..
An investor purchases a stock for $65 and writes a call option on the same stock with an exercise price of $70 for a premium of $4 per share. The call option expires in one year. What is the maximum profit the investor can earn on the combined “cover..
Orca, Inc. announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $1.2 a share. The following dividends will be $1.04, $1.11, and $2.51 a share annually for the following three years, re..
[Bonus Points Problem] In 40 years, you would like to retire on $150,000 a year in today's dollars. If the inflation rate = 4% a year for the next 40 years, how much must you have to equal today's $150,000?
Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $4 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. Unde..
Ecology Labs, Inc., will pay a dividend of $3.90 per share in the next 12 months (D1). The required rate of return (Ke) is 22 percent and the constant growth rate is 10 percent. (Each question is independent of the others.) a. Compute the price of Ec..
Given that risk-averse investors demand more return for taking on more risk when they invest, how much more return is appropriate for, say, a share of common stock, than is appropriate for a Treasury bill?
Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 11%. The bonds have a yield to maturity of 8%. What is the current market price of these bon..
Explain the concept of return on investment (ROI) and the two differ¬ent approaches to measuring ROI and what is the difference between a lump sum, an annuity, and an un¬equal cash flow stream?
Bob sells $40/month of product contracts and Dick sells $20/month of product contracts, how many contracts will Dick need to sell for every one that Bob sells in order to generate the same profit? Assume both contracts have identical monthly costs of..
A Hummer H3 sells for $92,000 tax included. GMAC lends money at the rate of 9.2 % APR. If you buy the car and borrow through GMAC, then what are the monthly? (end-of-month) payments for a 10 ?-year term? What is the amount of the monthly payment?
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