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The rate of return for bonds issued by the Australian Commonwealth Government Treasury is given as 2% per annum. The return for the Australian share market is given as 12% per annum. Suppose a listed company has a beta value of 0.8. The dividend payments for the company are expected to grow at 6% per year.
(a) Calculate the market premium.
(b) Calculate an investor’s required rate of return for the company’s shares.
(c) Calculate the intrinsic value of a share in the company if this year’s dividend (the current dividend) is $3 per share.
(d) Using your answer to part (c), if the market price of a share in the company is $70, would you buy shares in the company? Explain your answer.
(e) Calculate the intrinsic value of a share in the company if last year’s dividend was $3 per share.
(f) Calculate the intrinsic value of a share in the company if next year’s dividend is predicted to be $3 per share.
(g) Explain why Australian Commonwealth Government Treasury Bonds are considered to be risk-free.
Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2015. Blue had the following expenses in connection with the project: The new product will be introduced for sale beginning in July 2017. De..
You borrow a $328,000 add-on interest loan from the credit union and will repay in equal installments over 19 years. The nominal rate of interest is 4.5 %. Assuming daily repayment and compounding rate of interest, obtain the annual percentage rate.
What is a firm’s fundamental, or intrinsic value,
increases in net working capital requirements to be 10% of any increase in sales and capital expenditures to equal depreciation expenses.
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Dividends may be paid in cash or stock. A cash dividend reduces a corporation's cash and retained earnings. A stock dividend does not affect corporation's cash or equity
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