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Dividend Model Relationships:-
a. When computing the price of a stock with the dividend discount model, how would the price be affected if the required rate of return is increased? Explain the logic of this relationship.
b: When computing the price of a stock using the constant-growth dividend discount model, how would the price be affected if the growth rate is reduced? Explain the logic of this relationship.
Consider the following table for a seven-year period: Returns Year U.S. Treasury Bills Inflation Year 1 3.60 % −1.18 % Year 2 3.45 −2.32 Year 3 4.35 −1.22 Year 4 4.77 0.64 Year 5 2.57 −6.46 Year 6 1.45 −9.38 Year 7 1.18 −10.33 Required: What was the ..
App Inc plans to issue preferred stock with a perpetual annual dividend of 10% of par value and a par value of $25. If the required return on this stock is currently 8%, what should be the preferred stock’s market value?
Create a spreadsheet to calculate your projected total costs, total revenues, and total profits for giving a seminar on cost estimating. Make the following assumptions: You will charge $600 per person for a two-day class. You estimate that 30 people ..
Find the price bounds for the five-month forward price when: (1) the stock price is $50 today; (2) A trader can borrow money at 5 percent and lend money at 4 percent, where the interest rates are annual simple interest rates; (3) a brokerage commissi..
Wear Ever is expanding and needs $11 million to help fund this growth. The firm estimates it can sell new shares of stock for $40 a share. It also estimates it will cost an additional $300,000 for filing and legal fees related to the stock issue. The..
A five-year project has an initial fixed asset investment of $350,000, an initial NWC investment of $38,000, and an annual OCF of −$37,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
Cash discount versus loan. Joanne Germano works in an accounts payable department of a major retailer. She has to convince her boss to take the discount on the 1/15 net 65 credit terms most suppliers offer, but her boss argues that giving up the 1% d..
Since its inception, Eco Plastics Company has been revolutionizing plastic and trying to do its part to save the environment. Eco's founder, Marion Cosby, developed a biodegradable plastic that her company is marketing to manufacturing companies thro..
Net income is $2,262, Total Assets $39,150, Total Equity $21,650, and the retention ratio (beta) is 0.70. What is the internal growth rate?
HBS, Inc. has a growth rate of 6 percent and is equally as risky as the market. The stock is currently selling for $15 a share. The overall stock market has a 12 percent rate of return and a risk premium of 9 percent. What is the expected rate of ret..
Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true about these securities?
The stock of Alpha Company has an expected return of 16.25% and a beta of 1.35, and Gamma Company stock has an expected return of 10.50% and a beta of X. The beta of a portfolio P is 1.05. The portfolio P consists of 40% of the investment in Alpha an..
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