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Eastern Electric currently pays a dividend of about $1.76 per share and sells for $26 a share.
a. If investors believe the growth rate of dividends is 5% per year, what rate of return do they expect to earn on the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of return %
b. If investors' required rate of return is 12%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Growth rate %
c. If the sustainable growth rate is 6% and the plowback ratio is .4, what must be the rate of return earned by the firm on its new investments? (Enter your answer as a percent rounded to 2 decimal places.) Rate of return %
In a tax less world with no brokerage coasts, repurchases and dividends have the same effect on shareholder wealth. In the real world, however, repurchases provide more preferable tax treatment than dividends to ordinary investors. Is it necessary fo..
Southport Company is considering the purchase of a piece of equipment that costs $100,000. The equipment would be depreciated on a straight-line basis to its expected salvage value of $10,000 over its 16-year useful life. Assuming a tax rate of 40%, ..
What are major considerations when a firm considers using debt or equity capital to finance its investment projects? Continental Airlines filed for bankruptcy, at least in part, as a means of reducing labor costs. Who benefits and loses from the bank..
A particular firm's shareholders demand a 15% return on their investment, given the firm's risk. However, this firm has historically generated returns in excess of shareholder expectations, with an average return on its portfolio of investments of 25..
You are considering opening a new plant. The plant will cost $35 million upfront and will take two years to build. After that, it is expected to produce net cash flows of $5 million at the end of every year of production. The cash flows are expected ..
The stock price for Lawrence Corp. today is $20 and in each period the stock price goes up by 6% or down by 3% from what it was in the previous period. When the one-period interest rate is 1%, calculate the price for the put option (underlying asset:..
Cost of Equity The earnings, dividends, and common stock price of Shelby Inc. are expected to grow at 5% per year in the future. Shelby's common stock sells for $26.00 per share, its last dividend was $2.00, and the company will pay a dividend of $2...
Which of the following investments in NOT a debt obligation of the issuer?
Eureka, Inc., a US-based company does business in Ukraine also. The currency of Ukraine, hryvnia, is very volatile. There is always the possibility that hryvnia will depreciate with respect to the dollar. The company will have to reports its assets i..
A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, The company..
A firm pays a current dividend of $2, which is expected to grow at a rate of 5% indefinitely. If the current value of the firm’s shares is $21, what is the required return applicable to the investment based on the constant-growth dividend discount mo..
What are the arithmetic and geometric returns for the stock? - Arithmetic average return %- Geometric average return %.
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