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AT&T is a mature, established company paying dividends that have consistently increased each year. Its annual dividend is currently $1.64. Assume for this question that you can earn 3% risk free, and that you expect the overall market to return 15%. AT&T has a beta of 0.80. Use CAPM and the constant growth dividend valuation model to answer the following questions.
a. Find the required return according to CAPM. Do not round.
b. Find the value of AT&T according to the constant growth dividend model, assuming that AT&T dividends will grow at 6% per year, which is the average growth rate of AT&T dividends over the last 10 years.
KOOKIS, Inc., has developed a new cooky. The firm is planning to spend $60,000 on a new oven to produce the new cooky for 3 years. The machine has an expected life of three years, a $10,000 estimated resale value, and falls under the straight-line 3-..
An unlevered corporation has net income of $50,000 and a required rate of return of 14%. What would the value of this firm be if it borrowed $125,000 to buy back some of its stock? Assume a corporate tax rate of 35%. Show work
Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of $32 million, a maturity of 15 years, and a yield to maturity of 10%. The coupons are paid annually. What is the before-tax cost of debt for Olympic? What ..
A manufacturer of aerospace products acquired a new multispindle, multi-turret turning center for $250,000. The machine will generate new revenue of $80,000 per year. Now, suppose that the project duration is 5 years and that an estimate of the value..
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). What rate of return do you expect to ..
Explosive BetaSML Funds is a fund management company that has created a family of exchange traded (mutual) funds that are designed to put investors at various points along the Security Market Line. One of Explosive's products, called the Market Bull ..
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president Shelly Courts, who inherited the company. The company originally repaired radios and other household appliances when it was founded ..
A firm with a corporate wide debt-to-equity ratio of 0.5, an after cost tax of debt of 7 %, and a cost of equity capital of 15% is interested in pursuing a foreign project. What is the project’s weighted average cost of capital?
Many companies grow very fast at first, but slower future growth can be expected. Such companies are called:
For the sake of illustration, consider a situation where RestLife holds a $120 MM face value position with an IR DV01 of 73,828.09 and SPRD DV01 of 95,908.09. What position in an IRS and a CDS should be held if the IR DV01 and SPRD DV01 of $10 MM not..
You plan to start saving for your son’s college education. He will begin college when he turns 18 years old and will need $4,000 at that time and in each of the following three years. You will make a deposit at the end of this year in an account that..
Which of the following statements is true of the economic break-even point?
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