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P. Pravo Chocolate Co. expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $32.50 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock? Show work.
We have the Goncalves par bond paying a coupon rate of 8% and having a maturity of 20 years. If the coupon rate of Goncalves were to alter to 4%, what would the new duration be? What is the meaning of duration? Under what circumstances would duration..
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $1,200 per month for the next three years and then $2,400 per month for two years after that. If the bank is charging customers 8.00 percent APR, ..
MM Tool Manufacturing has an expected EBIT of $67,000 in perpetuity and a tax rate of 35 percent. The firm has $130,000 in outstanding debt at an interest rate of 8 percent, and its unlevered cost of capital is 15 percent. What is the value of the co..
Stephen and Chris are also looking at issuing preferred and common stock to further expand TechU's businesses. They also want to examine their existing stock value to get a picture of how much they can sell additional stock for. What would TechU be w..
You are considering the purchase of a common stock that just paid a dividend of $2.00. You expect this stock to have a growth rate of 30 percent for the next 3 years, then to have a long-run normal growth rate of 10 percent thereafter. If you require..
You got a high-paying job as a security analyst for a hedge fund. Your employer wants your opinion about XWZ common stock which currently sells for $92.50 per share and which recently paid a dividend of $3.95 per share. In ten years dividends per sha..
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year Large Company US Treasury Bill 1 4.00 4.62 2 14.49 4.96 3 19.33 3.88 4 –14.35 7.00 5 –31.84 5.38 6 37.04 6.43 a. Calculate the arithmetic a..
Keenan’s Inc.’s dividend is assumed to grow at the same rate of 4% forever. The dividend is currently $2 per share, and the investor’s required return is 9%. What is the value of Keenan’s Inc.’s common stock?
A loan of 100,000 is payable over five years with monthly payments of 60,000 commencing one month after the inception date. The loan repayment is 2,000 per month and the nominal rate 10 per cent. How much capital remains at the end of five years? bui..
The terms below all refer to interest rate, in one context or another. Which is the correct term for the following situation: an investor studies the financial statements, business plan and management team of a new start-up venture, as well as studyi..
The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.40 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. What ..
A proposed new project has projected sales of $129,000, costs of $63,000, and depreciation of $13,200. The tax rate is 30 percent. Calculate operating cash flow using the four different approaches. (Do not round intermediate calculations.) Approaches..
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