Investors require an after-tax rate of return of 10% on thelr stock Investments. Assume that the tax rate on dividends is30% whlle capltal galns escape taxatlon. A firm wll pay a $3 per share dividend 1 year from now, after which the firm'sstock Is expected to sell at a price of $38.a. Find the current price of the stock. (Do not round Intermedlate calculatlons. Round your answer to 2 decimalplaces.)b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round Intermediate calculations.Enter your answer as a percent rounded to 2 decimal places.)c. Now suppose that the dividend wll be $9 per share. If the expected after-tax rate of return Is still 10% and Investorsstill expect the stock to sell at $38 In 1 year, at what price must the stock now sell? (Do not round Intermedlatecalculatlons. Round your answer to 2 decimal places.)d. What is the before-tax rate of return? (Do not round Intermedlate calculations. Enter your answer as a percentrounded to 2 decimal places.)e. Is this smaller or larger than your answer to part (b)?Current pricea.b. Before-tax rate of return%с.Priced. Before-tax rate of return%Is this smaller or larger than yourе.answer to part (b)?larger

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Investors require an after-tax rate of return of 10% on their stock Investments. Assume that the tax rate on dividends Is 30% whle capital galns escape taxatlon. A firm will pay a $3 per share dividend 1 year from now, after which the firm's stock Is expected to sell at a price of $38. a. Find the current price of the stock. (Do not round Intermedlate calculatlons. Round your answer to 2 declmal places.) b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round Intermedlate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Now suppose that the dividend willl be $9 per share. If the expected after-tax rate of return Is still 10% and Investors stll expect the stock to sell at $38 in 1 year, at what price must the stock now sell? (Do not round Intermedlate calculations. Round your answer to 2 decimal places.)

Investors require an after-tax rate of return of 10% on their stock Investments. Assume that the tax rate on dividends Is 30% whle capital galns escape taxatlon. A firm will pay a $3 per share dividend 1 year from now, after which the firm's stock Is expected to sell at a price of $38. a. Find the current price of the stock. (Do not round Intermedlate calculatlons. Round your answer to 2 declmal places.) b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round Intermedlate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Now suppose that the dividend willl be $9 per share. If the expected after-tax rate of return Is still 10% and Investors stll expect the stock to sell at $38 in 1 year, at what price must the stock now sell? (Do not round Intermedlate calculations. Round your answer to 2 decimal places.)

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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GPS Inc. wishes to estimate its cost of retained earnings. The firm's beta is 1.21. The rate on 6-month T-bills is 0.036, and the return on the market portfolio index is 0.119. What is the appropriate cost for retained earnings in determining the firm's cost of capital? Instruction: Type your answer as a decimal, and round to three decimal places.
Maynard Steel plans to pay a dividend of $2.82 this year. The company has an expected earnings growth rate of 3.9% per year and an equity cost of capital of 9.5%. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. b. Suppose Maynard decides to pay a dividend of $0.95 this year and use the remaining $1.87 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. Maynard's share price will be $ (Round to the nearest cent.)
Bha
Assume Evco, Inc. has a current stock price of $48.64 and will pay a $2.25 dividend in one year; its equity cost of capital is 10%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price? We can expect Evco stock to sell for $. (Round to the nearest cent.)
Maynard Steel plans to pay a dividend of $3.18 this year. The company has an expected earnings growth rate of 4.5% per year and an equity cost of capital of 10.8%. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. b. Suppose Maynard decides to pay a dividend of $1.08 this year and use the remaining $2.10 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. Maynard's share price will be $. (Round to the nearest cent.)
Assume Evco, Inc. has a current stock price of $49. 11 and will pay a $2.25 dividend in one year, its equity cost of capital is 18%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price? We can expect Evco stock to sell for $ ( Round to the nearest cent.)
Am. 114.
Investors require an 8% rate of return on Levine Company's stock (i.e., rs = 8%). What is its value if the previous dividend was D0 = $3.50 and investors expect dividends to grow at a constant annual rate of (1) -6%, (2) 0%, (3) 4%, or (4) 5%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $
Five Star Corporation will pay a dividend of $4.35 per share next year. The company pledges to increase its dividend by 5.5 percent per year, indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company's stock today? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Current stock price
The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Expected return Standard deviation Dividend $ 2.80 1.80 0.90 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation Stock Price $ 48 43 34 b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %
Assume Evco, Inc. has a current stock price of $50.92 and will pay a $2.20 dividend in one year; its equity cost of capital is 18%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price? We can expect Evco stock to sell for $_____. (Round to the nearest cent.)

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