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A company is expected to pay a dividend of $1.15 per share one year from now and $1.89 in two years. You estimate the risk-free rate to be 3.4% per year and the expected market risk premium to be 5.9% per year. After year 2, you expect the dividend to grow thereafter at a constant rate of 4% per year. The beta of the stock is 1, and the current price to earnings ratio of the stock is 15. What would be an appropriate estimate of the stock price today? (Answer to the nearest penny, i.e. 55.55 but do not use a $ sign).
The authorized share capital of the Alfred Cake Company is 110,000 shares. The equity is currently shown in the company’s books as follows: Common stock ($2 par value) $ 73,000 Additional paid-in capital 23,000 Retained earnings 43,000 Common equity ..
Ann deposits $1068 into a savings account at t=0. Her balance earns interest at an interest of 3% per annum during the first n years (n
Benson, Athavale & Kemper (BAK) started a manufacturing facility in the last century. This firm, profitable since inception produces steering units for the automotive industry. The 3 founders have been averse to debt.
Consider the following financial statement information for the Amaryliss Corporation: Item Beginning Ending Inventory $9,682 $10,480 Accounts receivable 4,951 5,481 Accounts payable 5,252 5,593 Net sales $138,603 Cost of goods sold 86,413. Assume all..
Sometimes transaction costs (e.g. related to environment) eat away at or completely erase gains in efficiency. How can you reduce them? What are strategies to use?
Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to .4% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eight years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $12.75 per share 9 years..
Calculate and provide the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows?
Music City, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $42,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20..
Strategic Home Health Care, Inc., has a bond issue outstanding with seven years remaining to maturity, a coupon rate of 10 percent with interest paid annually, and a par value of $1,000. The current market price of the bond is $1,300. What is the bon..
The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up." As a result, the cemetery project will provide a net cash inflow of $93,000 for the firm during the first year, and th..
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY) Suppose that today you buy an annual c..
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