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The key step for this problem is to find what D1 is before applying Gordon model to calculate both the cost of retained earnings and the cost of new equity
ABC corporation expects to have earnings before interests and taxes during the coming year of 1,200,000, and it expects its earnings and dividends to grow indefinitely at a constant annual rate of 12 percent. the firm has 5,000,000 of debt outstanding bearing a coupon interest rate of 8.25 percent, and it has 100,000 shares of common stock outstanding. historically, Becker has paid 55 percent of net earnings to common shareholders in the form of dividends. the current price of Becker's common stock is $42, but it would incur a 9 percent flotation cost if it were to sell new stock. the firm's tax rate is 40 percent. (a) what is the firm's cost of retained earnings (internal equity) (b) what is the firm's cost of new equity (external equity).
What is the monthly principal and interest payment on a $170,000 15 year mortgage at 5.5% interest? Mary and Carlos want to buy a $400,000 house. They have $50,000 for a down payment. Their lender is offering them a 30 year mortgage at 6.2%. What is ..
If a stock has a beta of 0.5 and a required rate of return of 11.2 percent, and the market is in equilibrium, what is the return on the market portfolio?
Yesterday, Enviromax Systems paid a dividend of $5. You expect that dividends will grow at a rate of 6% per year. Shareholders' required rate return is 9%. According to the Dividend Discount Model, what should be the price of the stock? Assume that a..
An immediate one-time payment of $900,000; or ten annual payments of $100,000 with the first $100,000 received immediately.
A small business has decided to seek new investors for expansion. The company has recently paid a $4.75 dividend. The average required return for the industry is 17% Dividends have historically grown at a 6% interest rate. What is the value of the co..
The book-to-market is the observation that firms with high book-to-market ratios have positive alphas. Portfolios with high market capitalizations will have positive alphas if the market portfolio is not efficient. Portfolios with low book-to-market ..
Compute the Net Present Value, Payback Period and the Internal Rates of Return for each alternative - on the basis of your analysis , which of the alternatives would you recommend?
The interest rate is 11 percent. What is the future value?
Explain the difference between realized gain and recognized gain. On which one do taxpayers pay tax?
Assume that r* = 2.0%; the maturity risk premium is found as MRP = 0.2%(t − 1) where t = years to maturity; the default risk premium for AT&T bonds is found as DRP = 0.05%(t − 1); the liquidity premium is 0.75% for AT&T bonds but zero for Treasury bo..
We are evaluating a project that costs $1,160,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 44,000 units per year. Calculate the best-case an..
Consider dynamic pricing strategies and their impact on profit, explain why dynamic pricing provides significant profit benefit over (the best) price strategy as: a. Available cpacity decreases, b. demand uncertainty increases, c. seasonality in dema..
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