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1.A stock is expected to pay a dividend of $0.75 a...

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1.A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price? a- $17.39 b- $17.84 c- $18.29 d- $18.75 e- $19.22 2. If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock?s expected total return for the coming year? a- 7.54% b- 7.73% c- 7.93% d- 8.13% e- 8.34% 3. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell? a- $104.27 b- $106.95 c- $109.69 d- $112.50 e- $115.38 4. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock? (a)- Increase the dividend payout ratio for the upcoming year. (b)-Increase the percentage of debt in the target capital structure. (c)-Increase the proposed capital budget. (d)-Reduce the amount of short-term bank debt in order to increase the current ratio. (e)-Reduce the percentage of debt in the target capital structure. 5. Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A?s cost of capital is 10.0%, Division B?s cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A?s projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept? (Points: 10) a- A Division B project with a 13% return. b- A Division B project with a 12% return. c- A Division A project with an 11% return. d- A Division A project with a 9% return. e- A Division B project with an 11% return. Please show the computation for every answer. " - Sent to Accounting Expert Tutor on 2/2/2011 at 5:10pm You asked: ""1.A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price? a- $17.39 b- $17.84 c- $18.29 d- $18.75 e- $19.22 2. If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock?s expected total return for the coming year? a- 7.54% b- 7.73% c- 7.93% d- 8.13% e- 8.34% 3. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell? a- $104.27 b- $106.95 c- $109.69 d- $112.50 e- $115.38 4. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock? (a)- Increase the dividend payout ratio for the upcoming year. (b)-Increase the percentage of debt in the target capital structure. (c)-Increase the proposed capital budget. (d)-Reduce the amount of short-term bank debt in order to increase the current ratio. (e)-Reduce the percentage of debt in the target capital structure. 5. Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A?s cost of capital is 10.0%, Division B?s cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A?s projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept? (Points: 10) a- A Division B project with a 13% return. b- A Division B project with a 12% return. c- A Division A project with an 11% return. d- A Division A project with a 9% return. e- A Division B project with an 11% return. Please show the computation for every answer.

 

Paper#2156 | Written in 18-Jul-2015

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