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The Targaryen Corporation (TTC) commits to paying a constant dividend of $3 per share each year, in perpetuity. Suppose that another investment with the same level of systematic risk as TTC’s shares has an expected return of 15%.
a. The personal income tax rate is 0%. What is the share price of TTC?
b. Now assume that all investors must pay a 30% tax on dividends. What is the share price of TTC in this case?
c. The capital gains tax is 15%. TTC’s management makes a surprise announcement that TTC will no longer pay any dividends. Instead, TTC will use the same amount of cash it used to pay as dividends to repurchase stock (assume shares never run out). What is the price of a share of TTC now?
Determine how much additional money Hoffman could borrow at this time to invest in inventory and accounts receivable without violating the terms of its borrowing agreement.
Supplementary Exercise 5.48 A rock concert promoter has scheduled an outdoor concert on July 4th. If it does not rain, the promoter will make $30,000. What is the promoter's expected profit? Is the expected profit a reasonable decision criterion?
Using the initial simulation results, determine the estimated total annual inventory cost using the cost parameters provided in the example. Break out between order cost, holding cost, and stockout cost.
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What price do you expect the stock to sell for today, if your required rate of return on equity for a firm of this risk level is 16 percent?
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Within the M&M framework of corporate taxes but no personal taxes, determine the present value of the interest tax shield of Soonerco, as well as the total value of the firm.
Elaine Romberg prepares her own income tax return each year. A tax preparer would charge her $130 for this service. Over a period of 17 years, how much does Elaine gain from preparing her own tax return?
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Suppose the basis spread, S-F, is falling. How can you use this fundamental information to take an investment decision in iotions and swaps? Further, does your decision contradict the normal backwardation theory of keynes? why or why not?
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