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Southeastern Steel Company (SSC) was formed 5 years ago to exploit a new contin- uous casting process. SSC’s founders, Donald Brown and Margo Valencia, had been employed in the research department of a major integrated-steel company; but when that company decided against using the new process (which Brown and Valencia had developed), they decided to strike out on their own. One advantage of the new process was that it required relatively little capital compared to the typical steel company, so Brown and Valencia have been able to avoid issuing new stock and thus own all of the shares. However, SSC has now reached the stage in which outside equity capital is necessary if the firm is to achieve its growth targets yet still maintain its target capital structure of 60% equity and 40% debt. Therefore, Brown and Valencia have decided to take the company public. Until now, Brown and Valencia have paid them- selves reasonable salaries but routinely reinvested all after-tax earnings in the firm; so the firm’s dividend policy has not been an issue. However, before talking with potential outside investors, they must decide on a dividend policy. Assume that you were recently hired by Arthur Adamson & Company (AA), a national consulting firm, which has been asked to help SSC prepare for its public offering. Martha Millon, the senior AA consultant in your group, has asked you to make a presentation to Brown and Valencia in which you review the theory of dividend policy and discuss the following questions: Describe the series of steps that most firms take in setting dividend policy in practice. e. What is a dividend reinvestment plan (DRIP), and how does it work?
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.0, 1.5, and 1.7, respectively.
[Note: The information presented here applies to questions 3, 4, 5, and 6.] The fully-indexed rate on a 5/1 ARM with a maturity of 30 years is determined by the yield on the one-year LIBOR plus a margin of 250 basis points. If the fully-indexed (comp..
You are looking to buy a car. You can afford $510 in monthly payments for four years. In addition to the loan, you can make a $1,600 down payment. If interest rates are 8.50 percent APR, what price of car can you afford?
Bradford Manufacturing Company has a beta of 1.3, while Farley Industries has a beta of 0.85. The required return on an index fund that holds the entire stock market is 10.5%. The risk-free rate of interest is 6.5%. By how much does Bradford's requir..
Renee operates an ice cream stand. Calculate retention rate for Renee's ice cream stand.
Phillips Equipment has 80,000 bonds outstanding that are selling at par. Bonds with similar characteristics are yielding 6.75 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding..
What are the book value and market value of its stockholders’ equity?
Car dealer B offers the same lease at a flat $300 per month. - Which lease do you prefer if the interest rate is 0.5% per month?
The next dividend payment (D1) by Cold Beer, Inc., will be $ 4.1 per share. The dividends are anticipated to maintain a 6 percent growth rate forever. If the stock currently sells for $ 48 per share, the required return is ______ percent.
You are offered an investment opportunity the "guarantee" that your investment will double in 5 years.
How much savings do you need to support yourself during retirement?- How much will you contribute to your retirement? Into what type of plan(s) will you contribute?
What required annual yield must be earned before the investment makes economic sense.
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