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Sudsy Inc. recently paid an annual dividend of $1.00 per share. Analysts expect that amount to be paid for three years after which dividends will grow at a constant 5% per year indefinitely. The shares are currently trading at $20, and investors require a 15% return on similar issues. Has the stock market properly priced Sudsy’s shares?
A stock is trading at $85 per share. The stock is expected to have a year-end dividend of $3 per share (D1 = $3), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 12%. What is your forecast of..
Calculate the initial outlay associated with each alternative.- Calculate the operating cash flows associated with each alternative. Be sure to consider the depreciation in year 6.
An evaluation by the company's financial staff concludes that the company is holding too much cash. This situation is reported to the stockholders. How do you think the stockholders would react to this information? What options do you have to deal wi..
You take a short position in one Chicago Board of Trade Treasury bond futures contract with a face value of $100,000 at the price of 96 6/32 (or 96-6). The face value of a Treasury bond is $100. The initial margin requirement is $2,700, and the maint..
Suppose that an investor sells 400 shares short at $50 per share. The initial margin is 50% and the maintenance margin is 30%. After 125 days, the investor purchases the shares for $40 and closes the short position. At what price would the investor r..
You invest $1,400 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. __________ of your complete portfol..
Genetic Insights Co. purchases an asset for $11,473. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, r..
Consider a project that has 6 years of life time. This project requires investment of $1,000,000 at time zero for machinery and equipment to be depreciated over 5 year with half year straight line depreciation method (starting in year 1 to year 6). A..
Dandee Lions, Inc. has a cash balance of $105,000; accounts payable of $290,000; inventory of $213,000; accounts receivable of $310,000; notes payable of $95,000; and accrued wages and taxes of $65,000. How much net working capital does the firm need..
The store has a beta of 0.8. The yield for a 10-year T-bond is 6%. The required return of the overall stock market is 10%. What is the estimated cost of common equity. (Use the CAPM model).
A call option is currently selling for $3.90. It has a strike price of $45 and five months to maturity. The current stock price is $47 and the risk free is 4 percent. The stock will pay a divedend of $1.45 in two months. What is the price of a put op..
The risk free rate is 4%, and the expected return on the market is 12%. There is also an asset X with a Beta of 1.5.What is the return on portfolio 1 consisting of 40% of asset X and the rest in an asset with no risk? What is the return on portfolio ..
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