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Consider the constant-growth dividend discount model, where pt= Dt 1+g/k-g, where pt and Dt are prices and dividends in period t, and k is the rate of return on equity, g is the growth rate of dividends, and k > g. Then pt/Dt= 1+g/k-g. Provide an economic explanation for the effect of a fall in k on the price-dividend ratio.
(a) If we observe a rise in the ratio of pt/ dt relative to its historic average, how might this be explained within the context of the model?
(b) How do these explanations relate to the "this time is different" thesis? Explain.
(c) Can you relate your explanation to any historic examples of bubbles?
In, 1999, the S&P returned 21%, closing out a streak of five consecutive stellar up-years. Then in 2000, the S&P 500 returned -9.1%. In 2001, the S&P500 returned -16.1%.
Develop a marginal profit and loss statement for this business opportunity.
what is the yield to maturity on a 10-year 9 percent annual coupon 1000 par value bond that sells for 887.00? that
a) What is the factory worth today? Should you build the factory? b) What will the factory be worth at the end of five years (i.e. five years from now)? (H
paying in 65 days and thus becoming 35 days past due - without a penalty because its suppliers currently have excess capacity. What is the effective, or equivalent, annual cost of the trade credit?
lifeline inc. has sales of 586000 costs of 272000 depreciation expense of 70500 interest expense of 37500 and a tax
Emmy Corporation had starting raw materials inventory of $7,000. During the period, the company purchased $47,000 of raw materials on account.
Calculation of yield to maturity on bonds and finding out reason and explain why the International Paper bond is selling at a premimum but Sara Lee is selling at a discount
Assume instead of paying the cash dividend, the firm used the $2.4 million of excess funds to purchase shares at slightly over the current market value of $64 at a price of $65.20. How many shares could be repurchased?
What happens to the present value factor as our discount rate or interest rate increases for a given time period?
Your corporation has an opportunity to make the major investment in China of $100 million to make offshore manufacturing facility.
Suppose a firm is funded 30% with debt (yield of 9%) and has a 32% tax rate. What is the (levered) cost of equity assuming the unlevered cost of equity is 12%? Round your answer to two decimal places.
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