Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 14, Problem 20CQ
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Brinkley Resources stock has increased significantly over the last five years, selling now for $160 per share. Management feels this price is too high for the average investor and wants to get the price down to a more typical level, which it thinks is $25 per share. What stock split would be required to get to this price, assuming the transaction has no effect on the total market value? Put another way, how many new shares should be given per one old share?
Select the correct answer.
a. 7.25
b. 4.70
c. 5.55
d. 6.40
e. 3.85
Dollar-cost averaging means that you buy equal dollar amounts of a stock every period, for example, $500 per month. The strategy is based on the idea that when the stock price is low, your fixed monthly purchase will buy more shares, and when the price is high, fewer shares. Averaging over time, you will end up buying more shares when the stock is cheaper and fewer when it is relatively expensive. Therefore, by design, you will exhibit good market timing. Evaluate this strategy.
Brinkley Resources stock has increased significantly over the last five years, selling now for $175 per share. Management feels this price is too high for the average investor and wants to get the price down to a more typical level, which it thinks is $35 per share. What stock split would be required to get to this price, assuming the transaction has no effect on the total market value?
Chapter 14 Solutions
Corporate Finance
Ch. 14 - Prob. 1CQCh. 14 - Prob. 2CQCh. 14 - Efficient Market Hypothesis Which of the following...Ch. 14 - Market Efficiency Implications Explain why a...Ch. 14 - Efficient Market Hypothesis A stock market analyst...Ch. 14 - Semistrong Efficiency If a market is semistrong...Ch. 14 - Efficient Market Hypothesis What are the...Ch. 14 - Prob. 8CQCh. 14 - Prob. 9CQCh. 14 - Efficient Market Hypothesis For each of the...
Ch. 14 - Technical Analysis What would a technical analyst...Ch. 14 - Prob. 12CQCh. 14 - Prob. 13CQCh. 14 - Efficient Markets A hundred years ago or so,...Ch. 14 - Efficient Market Hypothesis Aerotech, an aerospace...Ch. 14 - Prob. 16CQCh. 14 - Prob. 17CQCh. 14 - Efficient Market Hypothesis Newtech Corp. is going...Ch. 14 - Prob. 19CQCh. 14 - Efficient Market Hypothesis The Durkin Investing...Ch. 14 - Efficient Market Hypothesis Your broker commented...Ch. 14 - Efficient Market Hypothesis A famous economist...Ch. 14 - Efficient Market Hypothesis Suppose the market is...Ch. 14 - Prob. 24CQCh. 14 - Prob. 25CQCh. 14 - Efficient Market Hypothesis Assume that markets...Ch. 14 - Prob. 27CQCh. 14 - Evidence on Market Efficiency Some people argue...Ch. 14 - Prob. 1QAPCh. 14 - Prob. 2QAPCh. 14 - Prob. 3QAPCh. 14 - Prob. 4QAPCh. 14 - Prob. 1MCCh. 14 - Prob. 2MCCh. 14 - Prob. 3MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 1. (True or false) Suppose I invested $10,000 in stock A 20 years ago and held that investment (reinvesting dividends, if any) until today. If stock A achieved a positive annual arithmetic rate of return over this 20-year period, then I must have more than $10,000 in my investment in this stock today. 2. (True or false). Short-selling allows investors to benefit from price declines. 3. (True or false). Suppose I hold a portfolio of two assets A and B. 40% of my money is invested in A and the remaining 60% is invested in B. Suppose the risks (return volatility) of A and B are both 10%. Then, the volatility of my portfolio return will also be 10%. 1arrow_forwardAnswer using the Gordon Growth Model under the Efficient Market Hypothesis Jimmy decides to invest in MSFT common stock. He expects that the stock will pay $1 dividend per share next year and its price will be $20 per share by the end of year when he is going to resell the stock. After some careful analysis Jimmy finds that the company's business operation risk has increased over the past year due to the recent financial and economic crisis. As a result, his required rate of return on the stock is 15%. What is the maximal price that Jimmy is willing to pay for the stock? a. $16.33 b. $17.15 c. $18.26 d. $19.47 e. $20.18arrow_forward(Common stock valuation) Wayne, Inc.'s outstanding common stock is currently selling in the market for $27. Dividends of $3.38 per share were paid last year, return on equity is 22 percent, and its retention rate is 27 percent. a. What is the value of the stock to you, given a required rate of return of 18 percent? b. Should you purchase this stock? Question content area bottom Part 1 a. Given a required rate of return of 18 percent, the value of the stock to you is $enter your response here. (Round to the nearest cent.) Part 2 b. Should you purchase this stock? (Select from the drop-down menus.) You ▼ should should not purchase the stock because your expected value of the stock is greater than the current market price, indicating that the stock would be currently ▼ underpriced overpriced in the market.arrow_forward
- Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Celestial Crane Cosmetics Inc. (CCC): Five years of realized returns for CCC are given in the following table. Remember: 1. While CCC was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for CCC for 2014 to 2018 are: Stock return 2014 2015 2016 2017 5.00% 3.40% 6.00% 8.40% 2018 2.60% Given the preceding data, the average realized return on CCC's stock is The preceding data series represents historical returns is of CCC's hist If investors expect the average realized return from 2014 to 2018 on C 15.75% 10.16% 5.08% 12.70% ns. Based on this conclusion, the standard deviation of CCC's o continue into the…arrow_forwardReturns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Happy Dog Soap Inc. (HDS): Five years of realized returns for HDS are given in the following table. Remember: 1. While HDS was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for HDS for 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 17.50% 11.90% 21.00% 29.40% 9.10% Given the preceding data, the average realized return on HDS’s stock is . The preceding data series represents of HDS’s historical returns. Based on this conclusion, the standard deviation of HDS’s historical returns is . If investors expect the average realized…arrow_forwardReturns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Happy Dog Soap Inc. (HDS): Five years of realized returns for HDS are given in the following table. Remember: 1. While HDS was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for HDS for 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 17.50% 11.90% 21.00% 29.40% 9.10% Given the preceding data, the average realized return on HDS's stock is The preceding data series represents historical returns is of HDS's historical returns. Based on this conclusion, the standard deviation of HDS's If investors expect the average realized return from 2014 to 2018 on HDS's stock to continue into the future, its…arrow_forward
- (Calculating rates of return) The common stock of Placo Enterprises had a market price of $9.96 on the day you purchased it just one year ago. During the past year the stock had paid a dividend of $0.85 and closed at a price of $11.55. What rate of return did you earn on your investment in Placo's stock? Question content area bottom Part 1 The rate of return you earned on your investment in Placo's stock is enter your response here%. (Round to two decimal places.)arrow_forwardPlease show how to solve Angelina's made two announcements concerning its common stock today. First, the company announced that its next annual dividend, which will be paid a year from today, has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4% annually. Angelina's stock has a beta of 1.15, the risk free rate is 1.95%, and the expected return on the market is 8.95%. What should the current price of Angelina's stock be? $21.60 $22.46 $26.21 $34.62 $36.00arrow_forwardReturns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Falcon Freight Inc. (FF): Five years of realized returns for FF are given in the following table. Remember: 1. While FF was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for FF for 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 25.00% 17.00% 30.00% 42.00% 13.00% Given the preceding data, the average realized return on FF’s stock is (63.50%, 25.40%, 50.80%, 78.74%) . The preceding data series represents (the population, a sample, the universe) of FF’s historical returns. Based on this conclusion, the standard deviation of FF’s historical…arrow_forward
- A stockbroker calls you and suggests that you invest in the Lauren Computer Company. After analyzing the firm’s annual report and other material, you believe that the distribution of expected rates of return is as follows:LAUREN COMPUTER CO.Possible Rate of Return Probability−0.60 ........... 0.05−0.30 ........... 0.20−0.10 ........... 0.100.20 ........... 0.300.40 ........... 0.200.80 ........... 0.15Compute the expected return [E(Ri)] on Lauren Computer stock.arrow_forwardAmy is looking into investing a portion of her recent bonus into the stock market. While researching different companies, she discovers the following standard deviations of one year of daily stock closing prices. Masterful Pocketwatches: Standard deviation of stock prices =$1.23 Eye Remember Enterprises: Standard deviation of stock prices =$9.72 Based on the data and assuming these trends continue, which company would give Amy a stable long-term investment?arrow_forward7. The stock of the Madison Travel Co. is selling for $28 a share. You put in a limit buy or-der at $24 for one month. During the month the stock price declines to $20, then jumpsto $36. Ignoring commissions, what would have been your rate of return on this invest-ment? What would be your rate of return if you had put in a market order? What ifyour limit order was at $18?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
8 Common Investor Biases (And How to Overcome Them); Author: Next Level Life;https://www.youtube.com/watch?v=7btv02RgCzo;License: Standard Youtube License