What is the expected return of the stock

Assignment Help Finance Basics

Reference no: EM133325710

Case: Jim Bob's Bait Shop is a thriving chain of fishing supply stores headquartered in Oklahoma_ It is currently unlevered, with a beta of 1 _ Each year, there is a 50% chance that the firm's earnings before interest and tax (EBIT) will be $5 million,(the "bad" state of the world) and .a 50% chance it will be $10 million (the "good state)_ Assume that every year is an independent draw (i.e., each year's EBIT is determined by these probabilities, no matter what happened during the previous year), everything is paid out to shareholders (so there is no growth over time), and everything is perpetual. The firm currently has 1 million outstanding shares. The risk-free rate is 4%, and the market risk premium is 6%. In addition, assume that the firm operates in a world where all Modigliani-Miller assumptions hold (i.e., no taxes, etc.)

Question 1: What is a fair price per share for the firm equity today?

Question 2: What is the expected return of the stock?

Question 3: What is the realized return to shareholders in the good state?

Question 4: What is the realized return to shareholders in the bad state?

Reference no: EM133325710

Questions Cloud

What is kobes rate of return : The margin loan has an interest rate of 5%. One year later, Penguin stock is trading at $80 per share. What is Kobe's rate of return

What is forecasting risk and what is irr : FIN 310 National University What is forecasting risk? Why is it a concern for the financial manager? Provide a scenario example to illustrate answer

Develop a student registration system : Develop a Student Registration System in which student gets to enroll in a semester. The semester contains courses. Each course has a title and course Code.

About the development of a cheaper using screening software : The article is about the development of a cheaper using screening software that will find early detection of breast cancer by a company in India.

What is the expected return of the stock : What is a fair price per share for the firm equity today and What is the expected return of the stock?

Describe the differences between thread, runnable : describe the differences between Thread, Runnable, and the Fork/Join Framework in Java. Discuss each and state when each would be used.

Explain how that issue could be corrected : After identifying why each visualization is misleading/biased, explain how that issue could be corrected (or could have been avoided)

Examples of the triangle model : Using the example of the Triangle Model, Individual Acts consider how various stakeholders experience and view the problem of discrimination at the workplace.

What is the main purpose of the memory management unit : What is the main purpose of the MMU (memory management unit)?With compile time binding are corresponding logical and physical addresses the same or different?

User Account

All Pages