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California Real Estate, Inc., expects to earn $71.4 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest $16.4 million today and $5.4 million in one year in real estate. The new investment will generate annual earnings of $11.4 million in perpetuity, beginning two years from today. The firm has 15.4 million shares of common stock outstanding, and the required rate of return on the stock is 12 percent. Land investments are not depreciable. Ignore taxes.
1. What is the price of a share of stock if the firm does not undertake the new investment? (Do not round intermediate calculation and round your final answer to 2 decimal places. (e.g., 32.16)) Share price $
2. What is the value of the Investment? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculation and round your final answer to 2 decimal places, (e.g., 32.16)) Value of the investment $
3. What is the per-share stock price if the firm undertakes the investment? (Do not round intermediate calculation and round your final answer to 2 decimal places, (e.g., 32.16)) Share price $
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 27,700 1 11,700 2 14,700 3 10,700 what is the NPV for the project if the required return is 12 per..
From each of the events of the financial crisis, consider how an MNC with investments in that country would be affected and how the MNC might best react.
Suppose the current one-month futures price for a 2-year U.S. Treasury note is 99.77 (percent of par) with a yield of about 1% and the current one-month futures price for a 10-year U.S. Treasury note is 95.17 with a yield of about 3.7%. The 2-year no..
The Grantor, age 70, is interested in removing an income-producing asset with significant appreciation potential from her estate. However, in addition to removing the asset from her estate for estate tax purposes, she wants to retain payments from th..
Suppose the risk-free interest rate is 4% and the market portfolio has an expected return of 10% and a standard deviation of 16%. Johnson & Johnson Corporation stock has a beta of 0.32. What is its expected return?
Why did the gold standard collapse? Is there a case for returning to some type of gold standard? What is it? What opportunities might current IMF lending policies to Third World nations create for international businesses? What threats might they cre..
Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively. What is the maximum gain when a butterfly spread is created from the put options? What is the maximum loss when a butterfly spread is created ..
A stock has a price of $31 and an annual return volatility of 59 percent. The risk-free rate is 3.03 percent. Calculate the call and put option prices with a strike price of $29 and a 90-day expiration. Calculate the deltas of the call and put
Bayboro Sails is expected to pay dividends of $3.50, $4.00, and $5.00 in the next three years—D1, D2, and D3, respectively. After three years, the dividend is expected to grow at a constant rate equal to 5 percent per year indefinitely. Stockholders ..
Compute the maximum change in total deposits that would result if deposits at financial institutions were immediately increased by $120 billion and the reserve requirement applicable to all deposits was 5%, 10% 50% 100%
As a general rule, the capital structure that maximizes firm value, or stock price also maximizes the expected rate of return on equity (ROE), maximizes the weighted average cost of capital (WACC)
Suppose your orders were not all filled completely because of excess demand for "hot" IPOs.- Recalculate your average return, taking into account that your orders were only partially filled.
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