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Assume that the average firm in your company's industry is expected to grow at a constant rate of 4% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $1. You expect that the growth rate of dividends will be 50% during the first year(g0,1 = 50%) and 20% during the second year (g1,2 = 20%). After Year 2, dividend growth will be constant at 4%.
1) What is the required rate of return on your company's stock? Round your answer to two decimal places. %
2) What is the estimated value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations. $
Petersen Company has a capital budget of $1.3 million. The company wants to maintain a target capital structure which is 55% debt and 45% equity. The company forecasts that its net income this year will be $600,000. If the company follows a residual ..
The real risk-free rate is 2.4%. The maturity risk premium is 0.1% for 1-year maturities, growing by 0.2% per year up to a maximum of 1.0%. The interest rate on 4-year treasuries (federal government bonds) is 6.4%, 7.5% on 8-year treasuries, and 8.2%..
Russell Container Corporation has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $126 and is currently selling for $980 per bond. Russell Corp. is in a 30 percent tax bracket. Make the ap..
Sales promotions are expensive to administer and can be fraught with legal complications. Sales promotions yield their most positive results when carefully integrated with the overall advertising plan. Identify which of the sales promotion techniques..
The preferred stock of Denver Savings and Loan pays an annual dividend of $5.70. It has a required rate of return of 6%. Compute the price of the preferred stock.
A factory costs $860,000. You reckon that it will produce an inflow after operating costs of $176,000 a year or 10 years. If the opportunity cost of capital is 12%, what is the net present value of the factory? What will the factory be worth after ni..
Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.3%. What is the value of its tax shields? What is ..
Suppose Mick's is projecting a 20% increase in sales for the coming year, and that cost of goods sold and all expenses remain a constant percentage of sales. Also assume that the amount of depreciation and interest paid and the firm's tax rate (35%) ..
Kennedy's has the following estimated quarterly sales for next year. Projected first quarter sales $11,400, second quarter $13,200, third quarter $15,800 & fourth quarter $12,700. The accounts receivable period is 70 days. What is the expected accoun..
Compute the weighted-average cost of capital for a firm with the following sources of funds and corresponding required rates of return: $5 million common stock at 16%, $500,000 preferred stock at 10%, and $3 million debt at 9%. All amounts are listed..
The stock of Alpha Company has an expected return of 16.25% and a beta of 1.35, and Gamma Company stock has an expected return of 10.50% and a beta of X. The beta of a portfolio P is 1.05. The portfolio P consists of 40% of the investment in Alpha an..
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