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Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.9 million shares that are outstanding. Shareholders require a 10% rate of return from Consolidated stock. a. What is the price of Consolidated stock? Stock price $ b. What is the total market value of its equity? (Enter your answer in millions.) Market value of equity $ million Consolidated now decides to increase next year’s dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year. c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.) New equity $ million d. What will be the total present value of dividends paid each year on the new shares that the company will need to issue? (Enter your answer in millions.) Present value $ million e. What will be the transfer of value from the old shareholders to the new shareholders? (Enter your answer in millions.) Transfer of value $ million f. Is this figure more than, less than, or the same as the extra dividend that the old shareholders will receive? More than Less than The same.
Mary plans to fund her individual retirement account (IRA) with the maximum contribution of $2,500 at the end of each year for the next 25 years. If Mary can earn 9 percent on her contributions, how much will she have at the end of the twenty-fifth y..
You need to choose between making a public offering and arranging a private placement. In each case the issue involves $10.9 million face value of 10-year debt. You have the following data for each: A private placement: The interest rate on the priva..
You are trying to plan for retirement in 10 years, and currently you have $350,000 in savings accoung and $600,000 in stocks. In addition you have plans on adding to your savings by depositing $10,000 per year in your savings account at the end of ea..
Solitaire Machinery is a Swiss multinational manufacturing company. Currently, Solitaire's financial planners are considering undertaking a 1-year project in the United States. what is the net present value and rate of return of the project for Solit..
A loan of $8,000 for two acres of woodland is compounded quarterly at an annual rate of 6% for ?ve years. Find the compound amount and the compound interest.
Upon seeing such a high IRR, the mayor of Detroit seeks a second opinion and hires Dan as a consultant. Dan is an aquarium expert and believes that Detroit's aquarium will only generate $1 million in cash flows for the first three years in operation,..
Vivien Harmon and Ben Harmon are a married couple residing in California. Vivien and Ben have one child, Violet Harmon (16). Sadly, in 2016, Vivien dies after giving birth to their youngest child, Ghostie Harmon. Calculate the probatable estate, tota..
You own a bond portfolio worth $88,330.You estimate that your portfolio has an average yield-to-maturity of 5.1% and Macaulay Duration of 3.3 years. If interest rates went down one percentage point and your portfolio's yield-to-maturity changed by th..
A financial institution has entered into an interest rate swap in which it receives 10% per year with semiannual compounding and pays 6-month LIBOR on a principal of $10 million for five years. Payments are made every six months. The current 6-month ..
You have saved $4,000 for a down payment on a new car. The largest monthly payment you can afford is $350. The loan will have a 10% APR based on end-of-month payments. What is the most expensive car you could afford if you finance it for 48 months?
If a project does not affect a company's revenues, but reduces its costs, how can this affect the value of the company?
Consider a commercial property that costs $1 million (90% building, 10% land) with the CAP rate of 10%. Assume that the operating cash flow and value of the property both grow at a rate of 5% per year. What is the equity before-tax IRR? What is the e..
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