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Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $0.50 coming 3 years from today. The dividend should grow rapidly—at a rate of 80% per year—during Years 4 and 5. After Year 5, the company should grow at a constant rate of 5% per year. If the required return on the stock is 14%, what is the value of the stock today?
The growth rate for the firm's common stock is 7%. The firm's preferred stock is paying an annual dividend of $5. What is the preferred stock price if the required rate of return is 8%?
If asset A has a standard deviation of .2 and asset B has a standard deviation of .2, then any portfolio that involves positive investment in both asset A and asset B will also have a standard deviation of .2. For most firms, market value leverage is..
Kinky Copies may buy a high-volume copier. The machine costs $170,000 and will be depreciated straight-line over 5 years to a salvage value of $30,000. Kinky anticipates that the machine actually can be sold in 5 years for $37,000.
Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company’s ROE numbers look good. Based on your..
The following information is available for the Oil Creek Corporation. Accounts receivable $19,000. Sales $195,000. Current assets $36,000. Total assets $147,000. Debt $90,000. Long term debt $48,000. Current liabilities $41,000. Profit margin 6% Numb..
ABC Company is currently quoted at 53 on NASDAQ. A Rights Offering has been declared with an exercise price of 48, and 4.92 rights are needed to buy a new share. If you own 10 round lots of this company, answer the following: What is the value of a r..
The risk free rate is 7%, the return in the market is 10%, and the beta is 1.30. What return must you receive to be satisfied that you are being fairly compensated for the risk of the firm?
Security A has an expected return of 8%t and a standard deviation of 20%. Security B has an expected return of 10% and a standard deviation of 50%. If you place half of your money in each stock, what is your expected return?
The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up". As a result, the cemetery project will provide net cash inflow of $104,000 for the firm during the first year, and the..
You are required to submit a bid to supply 200,000,000 widgets per year to the State of Illinois for the next five years. Your company has an idle tract of real estate that cost $1,500,000 ten years ago; if your company sold the land today, it would ..
Ritz Furniture has a contribution margin ratio of 0.10. If fixed costs are $176,500, how many dollars of revenue must the company generate in order to reach the break-even point?
Your firm has a net cash inflow for the quarter of -$30 (negative). The beginning cash balance is $15. Company policy is to maintain a minimum cash balance of $5 and borrow only the amount that is necessary to maintain that balance. How much does you..
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