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The earnings factory
(1) According to many analysts, The Earnings Factory is a ‘darling’ of the ASX. Its current market price is $15 per share and its book value is $5 per share. Analysts forecast that the firm’s book value will grow by 10% per year indefinitely, and the cost of equity is 15%. Given these facts, what is the market’s expectation of the firm’s long-term average ROE?
(2) Given the information in part a, what will be The Earnings Factory’s share price if the market revises its expectations of long-term average ROE to 20%?
(3) Analysts reassess The Earnings Factory’s future performance as follows: growth in book value increases to 12% per year, but the ROE of the incremental book value is only 15%. What is the impact on the market-to-book ratio?
Caterpillar (CAT) announced on Dec. 12, 2012 that it would pay a last quarter dividend of $0.52 on Dec. 31, 2012. Who are entitled to the dividend?
Gail's Dance Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share. The current cost of equity is 12% and the tax rate is 34%. Gail is considering adding $1 million of debt with a coupon..
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During the year, the Senbet Discount Tire Company had gross sales of $1.25 million. The firms's cost of goods sold and selling expenses were $544,000 and $234,000, respectively. The firm also had notes payable of $990,000. What was the firm's net inc..
Warren Reed just turned 40. He has decided that he would like to retire when he is 65. He thinks that he will need $1,500,000 in special retirement accounts at age 65 to maintain his current lifestyle. For the next 15 years he can afford to put $12,0..
What is the most you would be willing to pay to purchase PRG Corporation?
Emma, the sole shareholder of Quail Corporation (a C corporation), has the corporation pay her a salary of $300,000 in 2008. The Tax Court has held that $80,000 represents unreasonable compensation. Assuming Emma is in the 35% bracket in 2011, the Ta..
Silverthorne State Bank's balance sheet lists the following assets and liabilities & capital including their corresponding balances:
This position requires 24 months experience in development, evaluation, or revision of budgetary control systems,
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