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Kelsey Drums, Inc., is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company's class A common stock has paid a dividend of $11 per share per year for the last 17 years. Management expects to continue to pay at that amount for the foreseeable future. Sally Talbot purchased 300 shares of Kelsey class A common 10 years ago at a time when the required rate of return for the stock was 15%. She wants to sell her shares today. The current required rate of return for the stock is 12%. How much total capital gain or loss will Sally have on her shares?
a. the value of the stock when Sally purchased it was $____ per share
b. the value of the stock if Sally sells her shares today is $___ per share
c. the total capital gain (or loss) sally will have on her shares is $___
Briefly explain the following statement: The standalone risk of an individual corporate project may be quite high, but viewed in the context of its effect on stockholders’ risk, the project’s true risk may be much lower.
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A limited-pay whole life insurance policy with a short premium paying period (e.g., 10 years) runs the risk of becoming a “MEC” (Modified Endowment Contract) if:
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An investment has an installed cost of $535,800. The cash flows over the four-year life of the investment are projected to be $213,850, $230,450, $197,110, and $145,820. If the discount rate is infinite, what is the NPV?
A company forecasts free cash flow next year to be -$5 million, $12 million in two years, and $16 million in 3 years. Thereafter, free cash flow is projected to grow at a constant rate of 4% per year forever. If the overall cost of capital is 16%, wh..
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The portion of the Federal Insurance Contributions Act (FICA) tax paid by employers is 7.65 percent and the portion paid by employees is 7.65 percent (for a total of 15.3 percent). Suppose that absent FICA taxes, workers receive a competitive equilib..
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