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ABC telecom in is expected to generate $240 million in net income over the next year. ABC Telecom INC stockholders expect it to maintain its long run dividend payout ratio of 40% earnings. If the company wants to maintain its current capital structure of 60% debt and 40% equity, what is the maximum capital budget it can support with this year’s expected net income? IF ABC telecom INC reduces the amount of its forecasted capital budget, how will this affect the firm’s annual dividend, assuming that all other factors are held constant? A. The amount that ABC telecom INC will pay out in dividends this year will increase. B. The amount that ABC telecom INC will pay out in dividends this year will decrease. What kind of company is most likely to follow a strict residual distribution policy? A. A firm with table, predictable earning and investment B. A firm whose investments need change often. C. All companies D. A firm whose earnings are cyclical and follow the economy If you were to graph a firms earning, cash flows and dividends over the past 20 years, which would you expect to be the most stable over time? A. Earning B. Dividends C. Cash flows
Would you argue that the cost of equity should be zero? After all, we can determine our own dividend policy. The amount of earnings we choose to keep in the business (i.e., retained earnings after paying dividends) is "free", right?
Briefly explain the following statement: The standalone risk of an individual corporate project may be quite high, but viewed in the context of its effect on stockholders’ risk, the project’s true risk may be much lower.
Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has a coupon rate of 10 percent annually. Wha..
should china be forced to alter the value of its currency?the united states and the european union members are
Winnebagel Corp. currently sells 29,000 motor homes per year at $78,000 each and 8,000 luxury motor coaches per year at $120,000 each. The company wants to introduce a new portable camper to fill out its product line; What is the amount to use as the..
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. If the yield to maturity is 8.1 percent, what is the current price of the bond?
A U.S. investor buys 100 shares of Heineken listed in Amsterdam for 40 Euros. She goes through a U.S. broker, and the current exchange rate is 1 euro = 1.1 U.S. dollars. Her total cost is $4,400, or $44 per share of Heineken (40 × 1.1 $ per €).
A firm had a ledger balance of $4,122 with no outstanding deposits or checks. Today, your firm deposited 4 checks in the amount of $466 each and wrote a check in the amount of $969. What is the amount of the collection float as of the end of the day?
Your company is thinking about acquiring another corporation. You have two choices—the cost of each choice is $250,000. You cannot spend more than that, so acquiring both corporations is not an option. The following are your critical data:
Love Co. (a SWISS firm) is planning to invest CHF 2.5 million in a project in Denmark that will exist for one year. Its required rate of return on this project is 18%. It expects to receive cash flows of 2 million euros in one year from this project...
Explain the theory behind the free cash flow valuation approach. Why are the free cash flows value relevant to common equity shareholders when they are not cash flows to those shareholders, but rather are cash flows into the firm?
A couple bought a $300,000 home four years ago using a 15 year loan with an annual rate of 4.5% and a 20% down payment. What would be their monthly payments? Today they want to use a home equity line of credit to pay off some credit card debt. How mu..
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