From my industry research on Chester, I've learned that senior management intends to fully fund a newtechnology purchase by issuing 75,000 shares of stock as well as a new bond issue at the beginning of nextyear. My forecast indicates that this will increase Chester's leverage (assets/equity) to 2.13. I'm nowexamining the effects that this investment plan will have on Chester. If we assume that the stock is issued atyesterday's stock price of $40.01, which of the following conclusions are correct? I'd estimate that a third ofthese are right.RonaldRonald JeffersonBoard Member, Accounting & Finance |Andrews CorporationChoose all responses that apply.Total investment for Chester will be $6,391,598.☐ Chester will issue stock totaling $3,000,750.The Chester bond issue will be $3,390,847.Total Assets will rise to $174,028,988.☐ Long term debt will increase from $48,250,000 to $51,250,750

Check each option:a) Total investment will be $6,391.598.This conclusion is not supported by the…

Answered: From my industry research on Chester,…

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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You are evaluating the purchase of Bell, Inc. common stock that just paid a dividend of $4.60. You expect the dividend to grow at a rate of 10% for the next four years. You plan to hold the stock for four years and then sell it. You estimate the price of the company’s stock to rise to $59.37 at the end of your four-year holding period. A required rate of return of 13% will be adequate compensation for this investment. Given your assumptions, what is the current value of Bell stock? Round to the nearest $0.01 (allow a couple of pennies of rounding). answer is 53.62
Amarindo, Inc. (AMR), is a newly public firm with 11.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $15.41 million, and you expect the firm's free cash flows to grow by 3.8% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of AMR's equity beta. However, you do have beta data for UAL, another firm in the same industry: lower debt-equity ratio of 0.45, which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is 20%, the risk-free rate is 5.3%, and the expected return on the market portfolio is 10.7%. AMR has a much a. Estimate AMR's equity cost of capital. b. Estimate AMR's share price. a. Estimate AMR's equity cost of capital. The equity cost of capital is 21.16%. (Round to two decimal places.) Data table SID (Click on the following icon in order to copy its contents into a…
Atlantic Northern Inc. just reported a net income of $5,000,000, and its current stock price is $25.75 per share. Atlantic Northern is forecasting an increase of 25% for its net income next year, but it also expects it will have to issue 1,500,000 new shares of stock (raising its shares outstanding from 5,500,000 shares to 7,000,000 shares). If Atlantic Northern's forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does management expect its stock price to be one year from now? $25.18 per share O $25.75 per share O$18.88 per share $31.48 per share One year later, Atlantic Northern Inc.'s stock is trading at $43.50, and the company reports its common equity value as $35,252,000. What is Atlantic Northern Inc.'s market-to-book (M/B) ratio? 8.63x Is it possible for a company to have a negative EPS and thus a negative P/E ratio? Yes v
Use the following information to answer the question(s) below. Nielson Motors (NM) is a newly public firm with 25 million shares outstanding. You are doing a valuation analysis of Nielson and you estimate its free cash flow in the coming year to be $40 million. You expect the firm's free cash flows to grow by 4% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of Nielson's equity beta. However, you do have the following data for another firm in the same industry: Equity Beta Debt Beta 0.4 Debt - Equity Ratio 1.5 1.8 Nielson has a much lower debt - equity ratio of .5, which is expected to remain stable, and Nielson's debt is risk free. Nielson's corporate tax rate is 40%, the risk - free rate is 5%, and the expected return on the market portfolio is 10%. Nielson's estimated equity beta is closest to: O A. 0.95 OB. 1.25 O C. 1.00 OD. 1.45
One year ago, Barkley's stock sold for $28 a share. During last year, Barkley's paid $1.23 per share in dividends and saw its stock price increase by 7 percent for the year. Today, the firm announced that it will pay $1.30 per share in dividends this year. What do you know with certainty about the performance of Barkley's stock for this year? Multiple Choice The capital gains yield will be positive. The dividend yield for this year will be lower than it was last year. The total rate of return will be lower this year than it was last year. The total rate of return will be higher this year than it was last year. The dividend yield for this year will be higher than it was last year.

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