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Lava Development Company has maintained stable earnings of $7 per share, and has also maintained a 100% payout policy. Recently, Lava has decided to start a new line of business to develop luxury housing with scenic views of active volcanoes. The new line will require Lava to change to a policy of retaining 30% of its earnings for the foreseeable future. You estimate that with the new line of business that dividends will grow by 2% per year in perpetuity (after next year). Lava’s current cost of capital is 12%.
a. Calculate the intrinsic value of Lava Development shares?
b. Calculate Lava’s net present value of growth opportunities?
If the firm has 5 million shares outstanding and the required cost of capital for the firm is 8%, what is the value per share of the firm’s equity?
Which of the following is a theory about the use of nuclear weapons?
The past five monthly returns for PG&E are −3.45 percent, 4.58 percent, 4.05 percent, 6.89 percent, and 3.86 percent. Compute the standard deviation of PG&E’s monthly returns. (Do not round intermediate calculations and round your final answer to 2 d..
In general, the cost of debt capital is lower than the cost of equity capital.
LibreOffice, Inc. wants to raise $10 million dollars in debt financing. It wants to offer a $1,000 face value, 8.5 percent coupon bond with annual payments and 10 years to maturity. The yield to maturity on similar bonds out in the marketplace is 9.3..
Construct Industries, Inc. can issue perpetual preferred stock at a price of $27 a share.
The book value of equity of a firm is $82 million and the market value of equity is $96 million. The face value of debt of the firm is $40 million and the market value of debt is $16 million. What is the market value of assets of the firm? Preferred ..
What is the maximum price per share Schultz should pay for Arras?
The common stock of NCP paid $1.29 in dividends last year. Dividends are expected to grow at an annual rate of 6.00% for an infinite number of years. you (should/should not) make the investment if your expected value of the stock is (greater/less) th..
If the bond manager is concerned about an increase in interest rates, should the manager buy or sell a T- bond futures contact?
A bond with a settlement date of April 30, 2013 and a maturity date of May 15, 2021 has a coupon rate of 6.7%. (bond equivalent yield, semiannual compounding), If the yield to maturity of the bond is 6.33%, what is the list price of the bond on the s..
Calculate the composite rate and composite life through use of the straightline method of depreciation for the following group of assets:
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