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1. As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D0 = $0.85; P0 = $28.50; and g = 6.00% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?
9.16%
9.85%
11.14%
13.04%
14.59%
2. Trahern Baking Co. common stock sells for $36.15 per share. It expects to earn $4.00 per share during the current year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 8.0%. New stock can be sold to the public at the current price, but a flotation cost of 4.5% would be incurred. What would be the cost of equity from new common stock?
19.57%
21.08%
21.70%
15.78%
14.05%
Suppose that a bond pays an 11% annual coupon, has a par value of 1000, has a current market price of $978, and was originally bought for $989. What is the bond's current yield? What is the bond's total yield?
Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $22 million in invested capital, has $4.4 million of EBIT, and is in the 40% federal-plus-state tax bracket. Calculate the retu..
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Consider an investment in five S&P 500 Index futures contracts at a price of $924.80. The initial margin requirement is 15.0% and the maintenance margin is 10.0%. If the continuously compounded interest rate is 5.0% what will the futures price need t..
Delen is considering opening an office in a new market that would allow it to increase it annual sales by $ 2.5 million. Cost of sales is estimated to be 40% of the sales and corporate overheads would increase by $300000, not including the cost of ei..
According to the Lucas critique, why should policy makers not rely upon the Phillips curve relationship between inflation and unemployment as the formula for monetary policy?
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