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Company Q’s current return on equity (ROE) is 13%. The firm pays out 45 percent of its earnings as cash dividends. (payout ratio = .45). Current book value per share is $53. Book value per share will grow as Q reinvests earnings.
Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11.0% and the payout ratio increases to .70. The cost of capital is 11.0%.
a. What are Q’s EPS and dividends in years 1, 2, 3, 4, and 5? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
What is the expected return from a portfolio containing the two securities if 40 percent of your wealth is invested in Jones and 60 percent is invested in Bush?
What coupon rate should be set on the bonds-with-warrants so that the package will sell for $1,000?
Orwell Building Supplies’ last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 11%. What is the best estimate ..
The growth rate of a stock, g, represents the stock's. Which of the following is true about the change in the price of a stock?
Now suppose that in addition to the fee for the forward contract, What are the new upper and lower no-arbitrage bounds?
A business purchases depreciable equipment for 207, and sells it a few years later for 169. At the time of the sale, accumulated depreciation totals 101. If the company's tax rate is 33, what is the total after tax cash flow that will result from sel..
Assume that over 85 years, the total annual returns on large company common stocks averaged 18.4%, long term government bonds averaged 6.7%, & U.S. T-Bills averaged 3.8%. What was the average annual risk premium earned by long term government bonds &..
Financial markets on the whole are probably much more efficient than real asset markets. Mutual funds managed by professional money managers consistently outperform index mutual funds. In corporate insiders can beat the market this is evidence that t..
Suppose the short rate today is r1 = 6 percent while the expected short rate next year is E(r2) = 7 percent. Suppose Ann is a short-term investor whose goal is to have $2,000 next year. Find the risk premium Ann is demanding from the 2-year zero. Fin..
Over the past six years, a stock had annual returns of 10 percent, 5 percent, What is the standard deviation of these returns?
You just received your annual performance statement from your investment advisor. Are you happy with the risk-adjusted portfolio performance?
A bank will loan up to 75% of the equity in a home. What is the maximum loan that the bank will allow?
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