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You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money:
• Capital Cities ABC, Inc. bonds with a par value of $1,000, that pays an 8.75 percent on its par value in interest, sells for $1,314, and matures in 12 years.• Southwest Bancorp preferred stock paying a dividend of $2.50 and selling for $25.50.• Emerson Electric common stock selling for $36.75, with a par value of $5. The stock recently paid a $1.32 dividend and the firm's earnings per share has increased from $1.49 to $3.06 in the past five years. The firm expects to grow at the same rate for the foreseeable future.Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions.
a. Calculate the value of each investment based on your required rate of return.b. Which investment would you select? Why?c. Assume Emerson Electric's managers expect an earnings downturn and a resulting decrease in growth of 3 percent. How does this affect your answers to parts a and b?d. What required rates of return would make you indifferent to all three options?
You are thinking an investment in either individual stocks or a portfolio of stocks. The two (2) stocks you are researching, stocks A & B, have the following historical returns;
The required rate of return on projects of both of their risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.
What is the cost of equity for Pittsburgh Steel Products? 9.66% 13.25% 12.84% 10.71% 11.55%
A strong dollar is very important; however, the taxation issued raised by the professor is potentially harmful. Why would a foreign investor invest money in the United State
how much must the grandfather put into Ed's trust today and each subsequent year to enable him to have the same retirement nest egg as Steve after the last payment is made on their 65th birthday?
What is the present value of a lottery paid as an annuity due for twenty years if the cash flows are $250,000 per year and the appropriate discount rate is 7.50%?
Turner Video will invest $92,500 in a project. The firm's cost of capital is 11 percent. The investment will provide the following inflows. Use Appendix A.
Money received today is worth more than the same amount of money received in the future. This is true because
Participant in a stock bonus plan
A 15-year zero-coupon bond was issued with a $1,000 par value to yield 8%. What is the approximate market value of the bond?
A company invests considerable time and money to develop sophisticated cost functions that rate high on all evaluative criteria. In the course of using the cost functions.
You have a depreciation expense of $506,000 and a tax rate of 35%. What is your depreciation tax shield?
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