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Eastern Telecom is trying to decide whether to increase its cash dividend immediately or use the funds to increase its future growth rate. It will use the dividend valuation model originally presented in Chapter 10 for purposes of analysis. The model was shown as Formula 10-9 and is reproduced below.
Under Plan A, D0 would be immediately increased to $3.40 and Ke and g will remain unchanged.Under Plan A, D0 would be immediately increased to $3.40 and Ke and g will remain unchanged.Under Plan B, D0 will remain at $3.00 but g will go up to 6 percent and Ke will remain unchanged.a. Compute P0 (price of the stock today) under Plan A. Note D1 will be equal to D0 × (1 + g) or $3.40 (1.05). Ke will equal 10 percent and g will equal 5 percent.b. Compute P0 (price of the stock today) under Plan B. Note D1 will be equal to D0 × (1 + g) or $3.00 (1.06). Ke will be equal to 10 percent and g will be equal to 6 percent.
c. Which plan will produce the higher value?
Find out the degree of operating leverage? If units sold rise from 8,000 to 8,500, what will be the rise in operating cash flow? What is the new degree of operating leverage?
Explain Computing net present value for two mutually exclusive projects and the company has exactly this amount to invest
Explain Evaluation of Investment proposal through Profitability Index and Rank the proposals in terms of preference using the project profitability index
Calculate the present value for the data furnished and a security that will begin making payments when you retire in 20 of $20,000
Trustee in bankruptcy announced that stock was valueless also that even some of its favoured creditors would not be paid.
The present value of the following cash flow stream is $5,744 when discounted at 12 percent annually. The value of the missing cash flow is;
Enron employees were heavily invested in Enron stock through their 401(k) plans. While firms frequently provide a match in the form of firm stock, employees are typically free to move the money to an optional investment.
Calculate the 6 monthly discount factors D(t) and the semi-annual zero coupon rates z(t), where t = 0.5, 1, 1.5, ., 9.5, 10. (2) Using the discount factors derived in (1), calculate the price of a 4½ year semi-annual coupon bond with an annual coupon..
An airline is planning a new promotional campaign to attract college students by offering them the right to fly stand-by at low rates when seats are not otherwise filled.
With all else equal for an applicant, how would the manner of which interest is paid compare between short-term loans?
B. J. Orange Corporation is evaluating a security. One-year Treasury bills are currently paying 1.9%. Compute the investment's expected return and standard deviation.
The yearly sales for Salco Corporation. were $4.5 million last year. The company end-of-year balance sheet was as follows:
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