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The Mann Company belongs to a risk class for which the appropriate discount rate is 13 percent. Mann currently has 228,000 outstanding shares selling at $126 each. The firm is contemplating the declaration of a $4 dividend at the end of the fiscal year that just began. Assume there are no taxes on dividends.
Answer the following questions based on the Miller and Modigliani model, which is discussed in the text.
What will be the price of the stock on the ex-dividend date if the dividend is declared? (Do not round intermediate calculations.)
What will be the price of the stock at the end of the year if the dividend is not declared? (Do not round intermediate calculations.)
If Mann makes $5.3 million of new investments at the beginning of the period, earns net income of $2.7 million, and pays the dividend at the end of the year, how many shares of new stock must the firm issue to meet its funding needs? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.9 percent paid semiannually and 23 years to maturity. The yield to maturity on this bond is 4.3 percent. What is the price of the bond?
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