Why the discount rate equals opportunity cost of capital, Corporate Finance

Assignment Help:

Question:

(a) Describe why the discount rate equals opportunity cost of capital?

(b) "Nominal rate less inflation rate is equal to real rate of return" - Is it true? Why or why not?

(c) A stock is expected to offer an EPS of Rs. 10 next year. It follows a payout policy of 40%. All reinvested earnings are expected to offer a return of 15% which is equal to required rate of return. Suppose the company decides to increase the payout policy from 40% to 70%. What is the consequence of the decision on the stock price?

(d) Some stocks sell at a value more than Earnings of the next year divided by required rate of return. Suppose the markets are efficient, why should market offer a value more than the value derived above?

(e) "When the central bank changes the interest rate, bond prices react negatively" - Is it true? Why or why not


Related Discussions:- Why the discount rate equals opportunity cost of capital

Stock exchange, considering floatation on the stock exchange, produce a rep...

considering floatation on the stock exchange, produce a report explaining advantage of such a move

How much money saved?, Kristina started setting aside funds three years ago...

Kristina started setting aside funds three years ago to save for a down payment on a house. She has saved $900 each quarter and earned an average rate of return of 4.8 percent. How

Hw question on IRR, Your firm is contemplating the purchase of a new $791,0...

Your firm is contemplating the purchase of a new $791,000 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year life. It will

P/e ratio, P/E Ratio: When it comes to valuing stocks, the price/earnings ...

P/E Ratio: When it comes to valuing stocks, the price/earnings ratio is one of the highly oldest and most frequently used metrics. It is more than a measure of a company's past pe

Estimate the dollar-equivalent or adjusted rate of return, In January 2009 ...

In January 2009 you bought a German stock portfolio for 6,000,000 Euros and sold it in December 2009 for 7,000,000 Euros.  Assume that over the same period the dollar's exchange ra

303, What is the annual rate of return on an investment in a common stock t...

What is the annual rate of return on an investment in a common stock that cost $40.50 if the current dividend is $1.50 and the growth in the value of the shares and the dividend is

Venture, what is a co op society and its bye laws

what is a co op society and its bye laws

Consultancy Firm, You work for a major consultancy firms in corporate finan...

You work for a major consultancy firms in corporate finance. Your firm has been approached by one of its major clients to assist them in solving a problem that they have. You have

Efficiency, differentiate between aloocative effiency and pricing effiency

differentiate between aloocative effiency and pricing effiency

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd