Pecking order: "I was amazed to find that the announcement of a stock issue drives down the value of the issuing firm by 20-30%, on average, of the proceeds on the issue. That issue cost dwarfs the underwriters spread and the admin costs of the issue. It makes common stock issues prohibitively expensive" You are contemplating a $100 million stock issue. On past evidence, you anticipate the announcement of this issue will drive down the stock price by 3% and the market value of your firm will fall by 30% of the amount raised. On the other hand, additional equity financing is required to fund an investment project that you believe has a positive NPV of $40 million. Should you proceed with the issue. Probably O They should never issue equity O No

Pecking order: "I was amazed to find that the announcement of a stock issue drives down the value of the issuing firm by 20-30%, on average, of the proceeds on the issue. That issue cost dwarfs the underwriters spread and the admin costs of the issue. It makes common stock issues prohibitively expensive" You are contemplating a $100 million stock issue. On past evidence, you anticipate the announcement of this issue will drive down the stock price by 3% and the market value of your firm will fall by 30% of the amount raised. On the other hand, additional equity financing is required to fund an investment project that you believe has a positive NPV of $40 million. Should you proceed with the issue. Probably O They should never issue equity O No

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Your firm is selling 6 million shares in an IPO. You are targeting an offer price of $19.13 per share. Your underwriters have proposed a spread of 6.9%, but you would like to lower it to 5.4%. However, you are concerned that if you do so, they will argue for a lower offer price. Given the potential savings from a lower spread, how much lower can the offer price go before you would have preferred to pay 6.9% to get $19.13 per share? The offer price would need to drop to $. (Round to the nearest cent.)
A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (I). During the growth stage (II), she anticipates 13 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 37 percent and will eventually reach 59 percent during the maturity stage (IV). a. Assuming earnings per share will be as follows during each of the four stages, indicate the cash dividend per share (if any) during each stage. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places.) Stage I $ 0.40 Stage II 1.80 Stage III 2.70 Stage IV 3.30 b. Assume in Stage IV that an investor owns 325 shares and is in a 15 percent tax bracket. What will be the…
Mining has seen its business slowly wind down. It recently paid a dividend of $1.80 per share (D0), but analysts expect the dividend to decrease by 6% per year. The risk-free rate is 4.0% and the market risk premium is 5.0%. If the company beta is 0.8 and the market is in equilibrium, what is the value of its stock? $13.97 $11.79 $16.04 $12.09 $10.90
Explain well with proper answer.
You heard about a company that is producing a product that you really believe in. You think you can scrape together some money to buy a couple of shares when you get paid next. First, you would like to make sure that the price seems fair so you will calculate its value. Analysts estimate that the price of the stock is likely to be $82.7 in one year. It is a young company, so they do not pay dividends yet. You estimated that the fair return on the stock is 11.2%. What is your best guess at the fair value of the stock given this information? Answer:
2) You bought 1500 shares of Microsoft one year ago for $120 per share. Microsoft paid a $2 (per-share) dividend last year. The current stock price is $105. a. What rate of return did you earn from your Microsoft investment? b. Ifinflation rate over the last year was 4%, what is your real rate of return? c. Rather than buying 1500 Microsoft shares a year ago, you instead sold them short. What is the rate of return from your Microsoft trade now? Focu MacBook Pro A
(Lecture 8 Stock Valuation) ABC Inc. has not distributed dividends historically. It plans to spend $600 million on share repurchases one year later. The company has an equity beta of 1.1 and $300 shares outstanding. ABC's WACC is 4%. Given that the risk free rate is 1% and the expected market return is 8%, if ABC opts not to pay dividends going forward and the amount spent on repurchases is expected to decline by 2% per year, its stock price is $ per share. Instruction: Type ONLY your numerical answer, NO $ sign or comma sign needed, and round to the nearest two decimal places. E.g., if your answer is 18.763 then input 18.76.
Yesterday at the market close, the stock of Kevin Spellman, Inc. was trading at $100 per share and there were 500,000 shares outstanding. This morning before the market opened, Kevin Spellman, Inc. announced that it was doing a 5:1 stock split. Under the efficient market hypothesis and with no new information, what will be the new stock price in dollars per share?
high quality firms low quality firms 50 75 100 higher lower
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
You are short 3,500 shares of a $40 stock and based on its chart, you believe the shares could rise to $45, but that there is a resistance level at that price and the shares will likely fall back and continue to fall to a price significantly below $40. If the shares are able to break through the $45 resistance level, they could rise by an additional $10 or more. To try to protect against a large loss on your position, which of the following orders should most likely be placed? Short sell order. Good-till-canceled stop-sell order. Market order to buy. Limit order to sell “in the money”. Good-till-canceled stop-buy order. None of the above answers is correct.
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