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A firm earns 1 million in year 0. Thereafter, it continues to earn 1 million a year in perpetuity. The financial manager of the firm is considering two choices regarding dividends:
i. Paying out all earnings as dividends, or
ii. Starting from year 0, investing 20% of its earnings each year in projects which earn 10% return
Assume that the opportunity cost of capital is 15%.
a. Under choice ii, how much dividends will be paid in year zero, year one, year two, year T.
b. What will be the value of the firm (year 0's dividends included) under policies i and ii?
c. What percentage of the value of the firm under policy ii is due to PVGO?
Miller's has decided to add leverage to its financial operations by issuing $250,000 of debt at 8 percent interest. The debt will be used to repurchase shares of stock. You own 400 shares of Miller's stock.
Suppose that the payoff from an investment depends upon market conditions. A great market has payoff of $200,000, a normal market has a payoff of $100,000, and a poor market has a payoff of $20,000.
one of the advantages of leasing voiced in the past is that it kept its liabilities off the balance sheet, thus making it possible for a firm to obtain more leverage than it otherwise could have.
Find the future fund for Kelly, who is saving $350 at the beginning of each month for the next 4 years, if her savings account bears 7 1/2% interest compounded quarterly.
Use a properly labelled IS-LM graph to analyze and illustrate the effect and calculate the expected exchange rate for the end of the year.
Midwest Packaging's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 50%, which will result in annual interest charges of $235,000.
What amount of cash deposited today at 6.2-percent compounded annually will enable you to withdraw $8,098 at the end of each of the next 25-years
Consider the following Preliminary cash-flow forecasts for Otobai's electric scooter project (figures are in $billions). Calculate the variable cost per unit at which the electric scooter project would break even.
on January 1, 2013 Gibson corporation entered into a four-year operating lease. The payments were as follows. $21000 in 2012, $19000 in 2013, 16,000 in 2014, 14000 in 2015.
the real risk-free rate is 2.75%, inflation is expected to be 1.5% this year and 3.75% during the next 2 years. assume that the maturity risk premium is zero. what is the yield on 2-year treasury secutities
What's the future value of a 3%, 5-year ordinary annuity that pays $400 each year. If this was an annuity due, what would its future value be.
Lexus. is considering an investment of $383,000 in an asset with an economiclife of 5 years. The firm estimates that the nominalannual cash revenuesand expenses at the end of the first year will be $263,000 and $88,000
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