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An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows:
Firm A B CCurrent Earnings $2.00 $3.20 $7.00Current dividend $1.00 $3.00 $7.50Expected annual growth in dividends and earnings 7% 2% -1%Current market price $23 $47 $60
a) What is the maximum price that the investor should pay for each stock based on the dividend-growth model?b) If the investor does buy stock A, what is the implied percentage return?c) If the appropriate P/E ratio is 12, what is the maximum price the investor should pay for each stock? Would your answers be different if the appropriate P/E were 7?d) What does stock C's negative growth rate imply?
A business can be liquidated for $700,000, or it can be reorganized. Reorganization would need an investment of $400,000.
Northeast Company has 200,000 shares of common stock and 50,000 warrants outstanding. Each warrant entitles its owner to buy one share at a price of $20 before 2010.
Compute the amount of the bonus payable to the employees at year-end.
What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invest $3 million in first-stage financing for a 50% interest in the firm?
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The incremental value of theacquisition is $5,500. What is the net present value of acquiring Alto to Solo?
Is risk aversion a reasonable assumption? What is the relevant measure of risk for a risk averse investor?
Find out how much an investor would collect after 25 years if $100,000 is deposited and is compounded annually at 10%.
Calculation of a proposal to buy a new milling machine using NPV and What is the net cost of the machine for capital budgeting purposes
A motor grader requires two passes at 2 miles per hour, two passes at 3 miles per hour, and one pass at 4 miles per hour to accomplish the work; job efficiency is 0.80. How many hours will it take to complete the grading operation for the 2-mile p..
What are some differences in the analysis for a replacement project versus that for a new expansion project?
a. What is the initial investment? b. What is the Cash Flow at year 1? c. What is the Cash Flow at year 4? d. Is this a good investment? (hint: Compute NPV)
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