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REH corp most recent dividend was $2.95 per share its expected annual rate of dividend growth is 5% and the required return is now 15%. A variety of proposals are being considered by management to redirect the firms activities. Determine the impact on share price for each of the following proposed actions. a: do nothing which will leave the key financial variables unchanged. b: invest in a new machine that will increase the dividend growth rate of 9% and lower the required return to 14%. c: eliminate an unprofitable product line which will increase the dividend growth rate to 6% and raise the required return to 19% d: merge with another firm which will reduce the growth rate to 3% and raise the required return to 18% e: acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 19%.
It is January and Caustic Chemicals is considering issuing $500 million in bonds in June to raise capital for an expansion. Currently, CC can issue 20-year bonds with a 4% coupon (with interest paid semiannually), but CC is concerned that long-term i..
Internal Rate of Return and Net Present Value
What is the cost of capital of the company with each of the two alternative capital structures?
You have located the following information on Webb’s Heating & Air Conditioning: debt ratio is 54 percent, capital intensity is 1.10 times, profit margin is 12.5 percent, and the dividend payout is 25 percent. Calculate the sustainable growth rate fo..
An investment promises to pay an annuity of $150 monthly payments for seven years, but the payments do not start now. The first payment will be received 3 years from today. What is the maximum you will be willing to pay for this investment if your re..
MNO's capital structure includes bonds, preferred stock, and common stock. what is MNO's weighted average cost of capital?
Fyre, Inc., has a target debt−equity ratio of 1.60. Its WACC is 7.8 percent, and the tax rate is 40 percent. a. If the company’s cost of equity is 16 percent, what is its pretax cost of debt?
Sanders Jeans stock currently sells for $15.00 per share. It just paid a dividend of $1.00 per share. The dividend is expected to grow at a constant rate of 4% per year. What stock price is expected a year from now? What is the required rate of retur..
Tremont Designs is considering replacing one of its machines. With relation to the cash flows associated with this replacement, what is/are the:
If Bike uses residual distribution model to determine next year’s distribution and makes all distributions in form of dividends, what is expected payout ratio?
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facil..
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $18 million, and production and sales will require an initial $4 million investment in net operating working capital. The company's tax rate is 30%. W..
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