Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- The cost of
preferred stock is ________. - A) lower than the cost of long-term debt.
- B) higher than the cost of common stock.
- C) higher than the cost of long-term debt and lower than the cost of common stock.
- D) lower than the cost of convertible long-term debt and higher than the cost of common stock.
8. A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm's preferred stock is ________.
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8. A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm's preferred stock is ________.
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8. A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm's preferred stock is ________.
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- Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent. Current earnings are $2.80 per share, and the stock currently sells for $75 per share. There are 2,800 shares outstanding. Ignore taxes and other imperfections. The PE ratio will be ____ if the firm issues the dividend as compared to ____ if the firm does the share repurchase.arrow_forwardYou believe that Rose, Incorporated, stock is going to fall and you've decided to sell 900 shares short. If the current share price is $52, construct the equity account balance sheet for this trade. Assume the initial margin is 65 percent. Note: Do not round intermediate calculations. Input all amounts as positive values. Assets Proceeds from sale Initial margin deposit Total Liabilities and account equity Short position Account equity Totalarrow_forwardBlue Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $1.11 per share and the stock currently sells for $42 per share. There are 2,500 shares outstanding. Ignore taxes and other imperfections. If Blue Corp. pays a dividend, what will be the dividend per share? After the dividend is paid, how many shares will be outstanding and what will the price per share be? Enter your answers rounded to 2 DECIMAL PLACES. NOTE: Fractional shares are possible (Ex. 0.49 shares) Dividend 2.2 ☑ Correct response: 2.2±0.01 Shares outstanding = 2500 Correct response: 2,500 Stock price = 39.8 Correct response: 39.8±0.01 Click "Verify" to proceed to the next part of the question. After the $2.2 dividend, the price falls to $39.8 per share. What are earnings per share (EPS) and the price earnings (P/E) ratio? Enter your answers rounded to 2 DECIMAL PLACES. EPS = Number P/E RatioNumber Click "Verify" to proceed to the next part of the…arrow_forward
- True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. False True The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 3.86% while the market risk premium is 6.63%. The Monroe Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Monroe's cost of equity is The cost of equity using the bond yield plus risk premium approach The Lincoln Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's cost of internal equity. Lincoln's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Lincoln's cost of internal equity is: 19.76% 16.47% 15.65% O 18.12%arrow_forwardIf a company has just paid a dividend of $4 per share and never expects to pay another dividend forevor, what is the pprice of this share if the discount rate is 10%?arrow_forwardAn all-equity firm has expected earnings of $14,200 and a market value of $82,271. The firm is planning to issue $15,000 of debt at 6.3 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?arrow_forward
- As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price: (P0 – PX)/D = (1 – TP)/(1 – TG) Here P0 is the price just before the stock goes ex, PX is the ex-dividend share price, D is the amount of the dividend per share, TP is the relevant marginal personal tax rate on dividends, and TG is the effective marginal tax rate on capital gains. a. If TP = TG = 0, how much will the share price fall when the stock goes ex? multiple choice PX P0 D b. If TP = 16 percent and TG = 0, how much will the share price fall? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)…arrow_forwardA firm’s preferred stock currently sells for $90 per share and pays a dividend of $9 per share. However, the firm will only receive $85 per share from the sale of new preferred stock due to the floatation costs. What’s the firm’s component cost of Preferred stock? 10.6% 10.9% 11.8% 10.0%arrow_forwardAnle Corporation has a current stock price of $19.49 and is expected to pay a dividend of $1.25 in one year. Its expected stock price right after paying that dividend is $21.26. a. What is Anle's equity cost of capital? b. How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain?arrow_forward
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