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1. Explain the relationship between financial decisions and shareholders' wealth.
2. Explain how each of the following factors would affect the valuation of a firm's common stock, assuming that all other factors remain constant:
a. The general level of interest rates shifts upward, causing investors to require a higher rate of return on securities in general.
b. Increased foreign competition reduces the future growth potential of the firm's earnings and dividends.
c. Investors reevaluate upward their assessment of the risk of the firm's common stock as the result of increased South American investments by the firm.
3. In the context of the constant growth dividend valuation model, explain what is meant by
a. Dividend yield
b. Price appreciation yield
A bond pays semi-annual coupon payments of $30 each. It matures in 20 years and is selling for $1,200. What is the firm’s cost of debt if the bond’s par value is $1,000? In the Capital Asset Pricing Model, the market risk premium is estimated over a..
Roger Bhd’s common stock is selling for RM29.50 and recently paid dividends of RM1.75 per share. The company has an expected growth rate of 4 percent. What is the stocks expected rate of return? Should you make the investment if your required rate of..
Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent. Using Blume's formula, what is your best estimate of the future annual returns over the next 10 years?
Consider two assets, A and B. The correlation of returns between asset A and B is zero. Starting with the formula for the variance of a portfolio composed of the two assets, derive an expression for the weight placed in asset A and the weight placed ..
A 30-year corporate bond sold to investors at par ($1000) with a 10 percent coupon rate is called sixteen years later at a 12 percent call premium. At the time of call, prevailing rates on comparable securities were 8 percent. If the bond's holder re..
PV of dividends: Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return is 14 percent, what is the present value of their dividends o..
If Bremmer's eranings per share is $1.35, what is the price per share of Bremmer's stock? Using the price per share in part (A) determine the price per book ratio if Bremmer's equity book value per share is $9.58.
You are selling American made goods to a French customer, but for competitive reasons you must do the deal in Euros. In 6 months, you expect to receive euro 800,000. Do you hedge your receivable and how?
You purchased a zero-coupon bond one year ago for $278.33. The market interest rate is now 8 percent. If the bond had 17 years to maturity when you originally purchased it, what was your total return for the past year?
A sample of 25 patients in a doctors's office showed that they had to wait an average of 35 minutes with a sample standard deviation of 10 minutes before they could see the doctor. Contrast a 95% confidence interval estimate for the average waiting t..
The text identifies three methods for estimating the cost of common stock from reinvested earnings (not newly issued stock): CAPM method, DCF method, and Bond-yield-plus-risk-premium method.
Bellfont Company produces door stoppers. In September, Bellfont expects to produce 100,000 door stoppers. Assuming no structural changes, what is Bellfont’s production cost per door stopper for September?
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