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Consider Twitter's current stock price: $108.89. Current earnings per share, EPS = $1.29
a) If next year’s earnings are expected to be $3.14, what is the forward P/E ratio of the stock?
b) Assume that Twitter is expected to pay no dividends for the next 5 years. After 5 years, the company’s payout ratio is expected to be 50%. Earnings are expected to grow from $1.29 per share to $35.00 per share by the end of year 5. Using the dividend discount model and an equity cost of capital of 20%, given the current price, what are investors’ expectations of Twitter’s earnings growth after 5 years?
c) If the Fed tightens interest rates by 3% and the equity cost of capital rises by the same amount, using the dividend discount model, what is the effect on Twitter’s current stock price?
In December 1995 Boise Cascade’s stock had a beta of 0.95. The Treasury bill rate at the time was 5.8% and the Treasury bond rate was 6.4%. Assume the term structure of interest gives a 200 bp (basis point – a basis point is 1/100 of a %) spread bet..
Happy Cleaners needs a new steam machine that costs $100,000. The company is evaluating whether it should lease or purchase the machine. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm..
Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $168, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $163, the pric..
An inverted yield curve would suggest that
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What does the efficient market hypothesis say about a) securities b) their reaction to new information and c) investor opportunities to profit? What is the behavioural finance challenge to this hypothesis?
O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semi annually, and they sell at a price of $975. What is the bond's nominal coupon interest rate?
Papier Nouveau, a distributor of commercial printing supplies. As the Director of HR for Papier Nouveau, you are responsible for calculating monthly incentives.
10-year, zero coupon bonds have more reinvestment risk than 10-year, 10% coupon bonds. A 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5% coupon bond (assuming all else equal). The price of a 20-year, 10% bond is less sensitive ..
Which of the following transactions takes place in secondary markets?
You are considering the purchase of a share of Blue Grass, inc. common stock. You expect to sell it at the end of one year for $87 a share. You will also receive a dividend of $5.36 per share at the end of the next year. If your required return on th..
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