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Question - Assume you expect the company's income to be $2000 in the coming year and to except the 5% income growth rate (and beginning of year common equity to support it) is only expected for years 2 and 3. Then growth is expected to be zero and all income is expected to be distributed to shareholders for all future years. Assume the company is an all-equity firm; that is, all financing comes from stockholders and none comes from debtholders. In this case, the company's balance sheet has net operating assets (NOA) of $12 000, shareholders' equity of $12 000, and zero net financial obligations (zero net debt).
Required -
a. Compute residual income (i.e. abnormal earnings) for the next three years and verify that residual income is growing at a constant rate. What is that rate of growth?
b. Use the residual income (abnormal earnings) model to derive the value of the firm and the price per common share.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
Accounting problems, Draw a detailed timeline incorporating the dividends, calculate the exact Payback Period b) the discounted Payback Period. the IRR, the NPV, the Profitability Index.
Term Structure of Interest Rates
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Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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