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The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 5 percent. Suppose the capital gains tax rate is zero, whereas the income tax rate is 35 percent. Gecko has an expected earnings growth rate of 9 percent annually, and its stock price is expected to grow at this same rate. If the aftertax expected returns on the two stocks are equal (because they are in the same risk class), what is the pretax required return on Gordon’s stock?
Estimate Mercer’s share price at the conclusion of the transaction.
In a pool with 200 mortgages (10 year FRM, annual payments), average starting balance of $250,000 each, 6% mortgage rate, 0.5% servicing fee. If the CPR for the is pool is 5%, what is the sum of the undiscounted cash flows to the investor over the li..
Exercising the put involves selling the underlier at the strike price. What is the expected sale price? What is the expected price of purchase?
Sarah and James Hernandez purchased 200 shares of Cisco Systems stock at $17.80 a share. Calculate the Hernandez's total return for this investment.
Suppose that to short a stock you are required to deposit an amount equal to initial price of the stock. At the end of year 1, the stock price is X_1 and you liquidate your position. You receive your profit from shorting equal to X_0 - X_1 and you re..
Merton Black Scholes model: Two weeks later the stock price rises to 94. What is the value of the option then?
The tax rate is 39 percent and the required return on the project is 12 percent. What will the cash flows for this project be?
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. what is the NPV of the project?
What is the Enterprise Value of the investment in the base year? What is the dividend payout percentage for the company in the base year?
Conduct a three factor DuPont analysis for Starbucks and Dunkin' for 2013 and 2014 end-of-fiscal-year results. Use the information from financial statements provided in the section of the 2014 annual report titled: Item 8. Financial Statements and Su..
You have just been hired as the finance director of a firm that mines gold from a gold mine and sells gold on the world market. Production is stable, but you notice that the spot price of gold varies a lot. Compare the following two strategies for he..
It is now January 1, 2009, and you are considering the purchase of an outstanding bond that was issued on January 1, 2007. It has a 9.5% annual coupon and had a 30-year original maturity. What is the yield to maturity? What is the yield to call? If y..
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