As an investor with a marginal federal taxrate of 29% and a provincial tax rate of11.16%, you have decided to purchase2,000 shares of ABC CORP. and hold themfor 1 year. The current market price of ashare of ABC is $ 40.00. An investmentanalyst has indicated that the shares areexpected to rise in price by 10% in 1 year'stime and that ABC is expected to declareand pay a dividend of $ 1.00 per share forthe coming year. Required: If you purchasethe shares, what will be your expected totalafter-tax rate of return from the investmentand selling the shares after 1 year?

Marginal federal tax rate = 29% Provincial tax rate = 11.16% Current market price = $40.00…

Answered: As an investor with a marginal federal…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Loran Chalices Inc. hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) The company's noncallable bonds mature in 20 years, have a coupon rate of 7.00% paid annually, a par value of $1,000, and a current market price of $875. (2) The company's tax rate is 25%. (3) The required rate of return on the company's common stock based on CAPM is 10.3%. (4) The target capital structure consists of 45% debt, with the remainder comprised of common equity. What is its WACC?
Keidis Industries will pay a dividend of $4.15, $5.25, and $6.45 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $59.00 per share. The return on similar stocks is 11.7 percent. What is the current stock price?
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.72 per share and paid cash dividends of $2.02 per share (D0=$2.02). Grips' earnings and dividends are expected to grow at 40% per year for the next 3 years, after which they are expected to grow 9% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 10% on investments with risk characteristics similar to those of Grips?
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You own 1,000 shares of stock in Avondale Corp. You will receive a $.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 10 percent. a. What is the current share price of your stock (ignoring taxes)? b. If you would rather have equal dividends in each of the next two years by creating homemade dividends, what would be the cash flow for Year 1 and Year 2?
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To purchase shares of Paylocity Inc. (ticker symbol: PCTY), Steven Beauchamp requires a return of 8.50%. Paylocity, which just paid an annual dividend of $1.50 per share, expects to grow its annual dividend by 22% per year for the next 4 years. A 5% constant growth rate is subsequently expected. How much will Mr. Beauchamp pay today for one share of Paylocity? a. $62.36 b. $80.05 c. $67.26 d. $78.22 e. $71.25
Amherst Corporation, an investment banking company, often has extra cash to invest. Suppose Amherst buys900 shares of Hurricane Corporation stock at $57 per share, representing less than 5% ofHurricane’s outstanding stock. Amherst expects to hold the Hurricane stock for one month andthen sell it. The purchase occurs on December 15, 2018. On December 31, the market price of ashare of Hurricane stock is $58 per share.Requirements1. What type of investment is this for Amherst? Give the reason for your answer.2. Record Amherst’s purchase of the Hurricane stock on December 15 and the adjustment tomarket value on December 31.3. Show how Amherst would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018.

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