ns man pr plan loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $63 million at the end of next year. a. If Roybus has 32 million shares outstanding and a weighted average cost of capital of 13.8%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.

ns man pr plan loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $63 million at the end of next year. a. If Roybus has 32 million shares outstanding and a weighted average cost of capital of 13.8%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.

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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Management action and stock value REH Corporation's most recent dividend was $2.67 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 7% and lower the required return to 11%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 9% and raise the required return to 19%. d. Merge with another firm, which will reduce the growth rate to 2% and raise the required return to 16%. e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 19%. C a. If the firm does nothing that will leave the key…
Cc. 205
Management action and stock value REH Corporation's most recent dividend was $2.32 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 9% and lower the required return to 12%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 8% and raise the required return to 19%. d. Merge with another firm, which will reduce the growth rate to 1% and raise the required return to 19%. e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 19%.
a company will generate payoffs to investors the following year which depend on state of economy as follows: dividend stock price boom $8 $240 normal economy 4 90 recession 0 0 company goes out of business if a recession hits, calculate expected rate of return and standard deviation of return to shareholders and assume for simplicity that the three possible states of the economy are equally likely. The stock selling today goes for $80
J Ĉ If the public expects a corporation to lose $5 per share this quarter and it actually loses $4, which is still the largest loss in the history of the company, what does the efficient market hypothesis predict will happen to the price of the stock when the $4 loss is announced?
Maynard Steel plans to pay a dividend of $2.82 this year. The company has an expected earnings growth rate of 4.4% per year and an equity cost of capital of 10.4%. 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.)
Please solve in 30 minute
Baghiben
Covan, Inc. is expected to have the following free cash flow: Year FCF 1 12 2 14 3 15 4 16 Grow by 3% per year a. Covan has 8 million shares outstanding, $2 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 8 million shares outstanding, $2 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? The stock price should be $ (Round to the nearest cent.)
Assume MyPharm Corp. is announcing that one of its licensed medications has been successfully tested to be effective in the treatment of the Corona Virus. As a result, its future free cashflow is expected to increase by EUR 500 mln over the next 3 years. MyPharm has currently 80 mln share outstanding, no debt and a cost of equity of 7%. This news come as a surprise to the market. What should happen to the share price?
This problem introduces the concept of “sustainable dividends”: The firm whose financials are illustrated below wishes to maintain cash balances of 80 over the next 5 years. It also desires to issue neither additional stock nor make any changes in its current level of debt. This means that dividends are the plug in the balance sheet. Model this situation (note that for some parameter levels you may get “negative dividends,” indicating that there is no sustainable level of dividends).
The recent trade war has hit the Orange Company severely. Management announced that previous plans to expand its operations would be cancelled. Orange just paid a dividend of $2.50 but announced that next year’s dividend would be cut to $2 per share, and only grow at a rate of 2% per year forever. The market price of the stock was $20 before the announcement. The stock’s expected return is 15%. (a) Calculate the price of the stock after the announcement based on the constant dividend growth model. (b) Explain one (1) limitation of the constant dividend growth model. (c) Briefly discuss two (2) reasons each for an investor to prefer to invest in the convertible bonds of a company over the company’s: (i) Preferred shares (ii) Ordinary shares

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