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Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 1.6 million shares that are outstanding. Shareholders require a rate of return of 8% from Consolidated stock. a. What is the price of Consolidated stock? b. What is the total market value of its equity? (Enter your answer in millions.) Consolidated now decides to increase next year’s dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year. c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.) d. What will be the total present value of dividends paid each year on the new shares that the company will need to issue? (Enter your answer in millions.) e. What will be the transfer of value from the old shareholders to the new shareholders? (Enter your answer in millions.) f. Is this figure more than, less than, or the same as the extra dividend that the old shareholders will receive? More than Less than The same
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Your firm has taken out a $536,000 loan with 8.2% APR (compounded monthly) for some commercial property. As is common in commercial real estate, the loan is a 5-year loan based on a 15-year amortization. To do this, you will make 59 equal payments ba..
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 12 percent, and the company just paid a di..
What would you estimate is the difference between the annual inflation rates of the United States and Japan?
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EVALUATING AN INVESTMENT IN EXPANSION
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