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Your company announces that it will pay out a constant annual dividend of $2.00 per share for the next ten years. Following that, the dividend will grow at 4 percent per year and will be paid out in perpetuity at this growth rate (for example, the dividend at t=11 will be $2.00 x 1.04 = $2.08 per share). The company has an equity beta of 1.25. Assume a risk-free rate of 2.5 percent and a market risk premium of 6 percent. a) Based on the information provided above, what is the correct price per share for your company today? b) You would like to calculate the beta of your company’s assets, in order to get an idea of the sensitivity of your business operations to market conditions. Your company currently has 5M common shares outstanding, and 50K bonds outstanding priced at $900 per bond. These bonds are fairly low risk, so you think a beta of 0.05 is a reasonable assumption for these bonds. Given this information and your calculation in part (a), what is the beta of your company’s assets? c) Following this calculation, you realize that $35M of your company’s assets consist of riskless U.S. Treasury bonds, with the remainder consisting of the company’s operating assets. What is the beta of your company’s operating assets? Hint: use the formula provided in Question 2(b), with one “division” being the Treasury bond holdings and the other “division” being the operating assets. Also keep in mind that the value of the company’s assets equals the value of the company’s operating assets plus the value of the Treasury bonds held by the company.
Two drivers—Walt and Jessie—each drive up to a gas station. Before looking at the price, each places an order. Walt says, “I’d like 10 gallons of gas.” Jessie says, “I’d like $10 worth of gas.” What is each driver’s price elasticity of demand?
What are the differences between the consumer price index (CPI) and the GDP deflator? Check all that apply.
What is price in business? New products can come through product refinement and a product extension. Explain each.(What is product refinement and a product extension)
When several people died because of poisoned capsules of Tylenol pain reliever, strict government regulations were enacted to control the packaging of retail pharmaceuticals. Would private markets have reached the same result?
How does the short-run Phillips curve reflect a financial crisis as the one in 2008-2009?
Thomas has income of $1500 today and $1000 tomorrow. He can lend and borrow at an interest rate of 10%. There is 10% inhalation. His preferences for inter temporal consumption are represented by the following utility function U (c1 ; c2 ) = c1 + c2 ...
Using this demand function, find the total revenue function. What is the shape of the total revenue function.
an across-the-board tax reduction in income tax rates or a package of tax-relief measures that would give every household a $200 tax rebate and allow them to deduct the interest they pay on credit card purchases?
Describe the roles of the President and Congress in the federal budget process. What are the problems with the federal budget process? Why haven't we had a budget for 5 years? Any potential reforms? What are the 3 different budget philosophies?
What is interested and why do we have it? Explain why taking interest rate down to zero, i.e., no interest rate, may stoke inflation, and hence, removing the purchasing power of money and ruining the economy down the road.
Suppose that you are a borrower with a project that has a rate of return of 6.8%. You submit a bid to borrow $1,000 at an interest rate of 5%, and a lender accepts your offer. After you fund your project and pay back your loan, what is your gain or l..
A company expects to achieve cost savings of $4,500 the first year and amounts increasing by $800 each year for the next 5 years. At an interest rate of 10% per year, what is the total present worth of the savings?
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