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When valuing a company and you find that your estimated value of the firm differs substantially from the market value of the firm, what do you think could cause this big discrepancy? Explain the steps you will take to make sure that your estimate is reliable?
Harrison Company reported earnings of $4 million and its return on equity is averaging 14%. The company plans to retain 30% of its earnings. The company has a Beta of 1.8 and the average market return for companies with high risk is around 13%. The 5 year US Government Treasury Bond rate is around 3% company. The company plans to pay a dividend of $2.0 today.
(a) If you are an investor, what will be the maximum price you will pay for the company stock?
(b) If the stock is selling at $25 will you buy it? Why? What growth rate is implied in this stock price?
(c) If investors believe that the company risk will decline, and therefore its beta will change with a change in risk, and with investors required rate of return of 12%; what is the beta of this stock given that the market risk premium remains the same
Please show how you got the answer. Step by step.
If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital. If the new project is riskier than the firm's existing projects, then it should be charged a lower cost of capital. If the new projec..
A stock has an expected return of 10.5 percent, its beta is 1.00, and the risk-free rate is 6.25 percent. What must the expected return on the market be?
Kellogg Co. (K) recently earned a profit of $2.52 earnings per share and has a P/E ratio of 19.50. The dividend has been growing at a 9 percent rate over the past few years. If this growth rate continues, what would be the stock price in five years i..
Draiman, Inc., has sales of $598,000, costs of $260,000, depreciation expense of $64,500, interest expense of $31,500, and a tax rate of 40 percent. The firm paid out $42,500 in cash dividends. (Enter your answer as directed, but do not round interme..
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What is a debenture? Why do you think that this is the most common form of corporate bond in the United States, but is much less commonly used elsewhere?
Pluto's has 14,000 shares of stock outstanding with a par value of $1 per share. The market value is $39.60 per share. The balance sheet shows $522,500 in the capital in excess of par account, $14,000 in the common stock account, and $429,700 in the ..
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You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 25 years and the payments will increase by 3.5 percent per year. If the appropriate discount rate is 7.5 percent, what is the present value of your w..
When using the indirect method of presenting cash flows from operating activities.- Explain why these adjustments to net income are made to compute cash flows from operating activities.
Define and discuss the importance of the time value of money concepts including compounding (future value), discounting (present value), and annuities. Why do organization leaders need to understand these concepts?
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