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Question 1: Your firm is considering expanding its household products division. You identify Procter & Gamble (PG) as a firm with comparable investments. Suppose PG's equity has a market capitalisation of $144 billion and a beta of 0.57. PG also has $37 billion of AA-rated (beta of 0.01) debt outstanding, with an average yield of 3.1%. Estimate the cost of capital of your firm's investment given a risk-free rate of 3% and a market risk-premium of 5%.
Question 2: Dren Industries is considering expanding into a new product line. Earnings per share are expected to be $5 and are expected to grow annually at 5% without the new product line but growth would increase to 7% if the new product line is introduced. To finance the expansion, Dren would need to cut its dividend payout ratio from 80% to 50%. If Dren's equity cost of capital is 11%, what would be the impact on Dren's stock price if they introduce the new product line? Assume the equity cost of capital will remain unchanged.
Question 3: Titan Industries has 217 million shares outstanding and expects earnings at the end of this year of $860 million. Titan plans to pay out 50% of its earnings in total, paying 30% as a dividend and using 20% to repurchase shares. If Titan's earnings are expected to grow by 7.5% per year and these payout rates remain constant, determine Titan's share price assuming an equity cost of capital of 10%.
Question 4: Suppose FitOne Company will pay a dividend this year of $3.50 per share. Its equity cost of capital is 12%, and you expect its dividends to grow at a rate of about 3% per year, though you are somewhat unsure of the precise growth rate. - If FitOne's stock is currently trading for $45.00 per share, how would you update your beliefs about its dividend growth rate?
Two economists from Northwestern University estimated the benefit households received from subscribing to broadband Internet service. The economists found that
Radio City promises if you can find a lower advertised price for anything you bought at Radio City, anywhere in town within 30 days, it will return the difference plus 20 percent. A sophisticated game theoretic analysis suggests Radio City may be:
What is 'shadow banking'? Does it pose a threat to the stability of China's financial system? It should also present a cogent and reasoned argument.
Discuss the impact of major accounting/financial scandals on investors’ asset preferences. In your opinion how do the scandals affect foreign markets? Discuss two macro variables that affect changes in interest rates/or markets. If you watch these va..
You use money just about every day. What is money and what functions does it perform? How is the supply of money measured? Who influences how much liquidity in created or reduced in the U.S. economy?
Assume an oligopoly market with two firms. The inverse demand function and cost functions are as follows: P=150-2(Q1+Q2) and C1=20Q1 and C2=28Q2. Calculate: a. Cournot dupoly equilibrium output, price and profit, b. Stackelberg equilibrium output, pr..
Someone once said, "You can watch the size of the Cadillac market shrink by just reading the obituaries." In the context of the external environmental forces discussed in the chapter, what did this person mean? What has Cadillac done to counter th..
1.the production possibilities curves above show all the possible combinations of helicopters and scooters that two
The manager of a local monopoly estimates that the elasticity of demand for its product is constant and equal to -3. The firm’s marginal cost is constant at $30 per unit. a. Express the firm’s marginal revenue as a function of its price. Instruction:..
A rainstorm in Portland, Oregon, wiped out the electricity in 10% of the households in the city. Suppose that a random sample of 70
The market price of pizza in College Town decreased recently. Some students in an economics class suggest that the price fell because several new pizza parlors opened for business in the area. the graph right now looks like the supply and demand curv..
The general demand function for good A is Qd = 754 - 2 PA - 0.05M + 6PB + 10?+ 3PE + 2N where Qd = quantity demanded of good A each month, PA = price of good A, M = average household income, PB = price of related good B, Interpret the intercept param..
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