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Sepia Ironworks Inc. is expected to earn $5.0 per share next year (i.e., EPS1 = 5). The company is currently considering an expansion plan that would require all earnings to be retained for the next three years, so that the next cash dividend under the plan would be paid four years from now. Under the plan, growth in earnings is expected to be 16% per year. Upon completion of the plan, Sepia will maintain a 60% payout ratio forever on a ROE of 16%. Assume the company’s stock has a required return of 12%. Answer the following questions.
A. If Sepia goes forward with the plan, what will be the growth rate after the completion of the plan?
B. If Sepia goes forward with the plan, what will be its new stock price?
C. What is the present value of growth opportunities?
What is the debit balance? What is the investor’s equity? If the stock price goes up by 50%, what is the return on investor’s equity?
Option 1 is a fully automated machine with an initial investment of $ 6,000,000 with an annual maintenance cost of $12,000. The machine has a salvage value of $80,000 at the end of 25 years. The cost of producing each part is $10 each. Find the Annua..
In 2015, a running back signed a contract worth $69.1 million. The contract called for $12 million immediately and a salary of $3.9 million in 2015, $10.3 million in 2016, $12 million in 2017, $9.8 million in 2018 and 2019, and $11.3 million in 2020...
If the exchange rate between francs and dollars is Fr 7.546 = $1.00, and between pounds and dollars is £1 = $1.4623, what is the exchange rate between francs and pounds?
Ross has decided that he wants to build enough retirement wealth that, if invested at 7 percent per year, will provide him with $4,200 of monthly income for 30 years. To date, he has saved nothing, but he still has 20 years until he retires. How much..
On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows: 1R1 = 5.80%, 1R2 = 6.30%, 1R3 = 6.80%, 1R4 = 7.00% Using the unbiased expectations theory, what is the ..
The Clayton Manufacturing Co. is considering an investment in a new automated inventory system for its warehouse that will provide a cash savings to the firm over the next five years. Assume a 35% tax rate. What is the NPV of this project if the disc..
Your company has spent $350,000 on research to develop a new computer game. The firm is planning to spend $55,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; What will be ..
Kees Corporation offers 35,000 shares of common stock to the public in an initial public offering (IPO).
The MARR required for the calculation of the project’s Net Present Worth (NPW) in after-tax current (actual) dollars is
Suppose there are two assets, a risk-free asset, and a market portfolio. The market portfolio has an expected return of mu m = E[Rm] = 15% and a standard deviation of sigma m = 15%. The return on the risk-free asset is Rf = 5%. After thinking about t..
A firm is expected to pay a dividend of $2.35 next year and $2.65 the following year. Financial analysts believe the stock will be at their price target of $105 in two years. Compute the value of this stock with a required return of 11.3 percent.
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