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A firm is investing retained earnings in investments earning positive returns. As a result of these investments, earnings-per-share is growing. Can we assume that common stock prices are also increasing as a result of these investments?
A) Yes, because higher earnings translate to higher dividends and, therefore, higher stock prices.
B) No, earnings will grow as long as investment earns a positive return. However, if the investments are earning positive returns that are less than their opportunity costs of capital, earnings-per-share will grow,but, stock prices will decrease.
You invested $10,000 in a mutual fund at the beginning of the year when the NAV was $32.24. At the end of the year the fund paid $0.24 in short-term distributions and $0.41 in long-term distributions. If the NAV of the fund at the end of the year was..
Moby Dick Corporation has sales of 4,912,720; income tax of 503,624; the selling, general and administrative expenses of 274,579; depreciation of 397,181; cost of goods sold of 2,639,530; and interest expense of 123,651. Calculate the amount of the f..
A stock price is currently $100. Over each of the next two six-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a one-year American put option w..
Municipal Bond pays a return of 4% and a corporate bond pays a 7% return. At what tax rate will you be indifferent between the two types of bonds?
Because predicting exchange rates is difficult, many firms and investors subscribe to professional forecasting services for a fee.
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Suppose that the government of Michconsin imposes a tax on cheese curd production. - When will the efficiency costs of the tax be greater-in the short run or in the long run-and why?
What is the present value of these cash flows if you require a 6% rate of return (discount the cash flows at that rate)?
Benson Corporation announced that its net income for the year ended June 30, 2015 is $1,000,000. The company also reported EBITDA of $5,000,000, and depreciation and amortization expense of $1,250,000. If the company's income tax rate is 50 percent, ..
what are the effective quarterly and nominal annual interest rates for this bond investment?
Which of the following is NOT a reason to monitor free cash flow in order to understand the value of a business? Each year, shareholders receive a dividend equal to the firm's net earnings divided by the number of shares of common stock. Which of the..
Suppose Allie writes two call options (200) on Amazon with a strike price of $900 and a call premium of $4? What if the Amazon drops below $900?
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