Suppose you learn that Hertz will have EPS of 2 dollars for the coming year (t-1). Hertz plans to retain all of itsearnings for the next three years (i.e. not payout anything). The following two years (t=4 and t=5), the firm plans onretaining only half (or 50%) of its earnings. Starting in year 6, it will retain only 25% of its earnings (t=6 and after).Retained earnings will be invested in projects with an expected return of 20 percent per year [this rate along with theretention rate tells you how much dividends grow]. If Hertz's equity cost of capital is 12%, then what is the price of ashare of Hertz's stock?Note: pick the number that is closest to the correct value.Select one:O a. $18O b. $20O c. $27O d. $32

Data provided:-Earnings per share (t1)= $ 2Retention rate for year 4 = 50%Retention rate for year 5…

Answered: Suppose you learn that Hertz will have…

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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Suppose that the forward rate today for the period between 1 year and 2 years in the future is 7% (with annual compounding) and that sometime ago a company entered into an FRA where it will receive 5% (with annual compounding) and pay SOFR (market rate) on a principal of $100 million for the period. Today the 2-year zero rate rate is 6.5%. What is the value of the FRA this company has entered into to get paid 5%, now that the forward rates have gone from 5% to now being 7%?
2.Your expected income will grow at 6% per year for the next five years. After that your incomegrowth is expected to slow to 3% per year and continue at that level forever. Your currentincome is AED 500,000. What is the present value of all future earnings if the interestrate is 8%? (Assume all cash flows occur at the end of the year.)
At the end of t years, the future value of an investment of $13,000 in an account that pays 9% APR compounded monthly is S=13,000(1 + 0.09 divided by 12) square root 12(t) dollars. Assuming no withdrawals or additional deposits, how long will it take for the investment to amount to $39,000? The investment will grow to $39,000 in ______ years. (Do not round until final answer. Then round to two decimals places as needed)
1. An investment promises to pay 8 percent interest per annum, compounded continuously. The initial amount needed is Php 100,000. Assuming the investment succeeds, (a) find the time required for the account to double in value, presuming no withdrawals and no additional amount were invested again. (b) If you decide to pull out your investment together with the earnings at the end of two years, how much will you be able to withdraw?
Star.An advertisement of an investment firm states that if you invest P500 in their firm today you will get P2,000 at the end of 10 years. What nominal rate is implied if interest iscompounded quarterly?
Assume a firm buys a new machine this year at a cost of $12,600 that will lead to savings of $6,600 after one year, $4,840 more after the second year and another $4,000 after the third year. Then the machine will become obsolete and no further savings will accrue. Is this a worthwhile investment if we assume that there is no inflation and that the market rate of interest remains at i = 10% over the three year period?
A company must pay a $309,000 settlement in 3 years. (a) What amount must be deposited now at 6% compounded semiannually to have enough money for the settlement? (b) How much interest will be earned? (c) Suppose the company can deposit only $200,000 now. How much more will be needed in 3 years? (d) Suppose the company can deposit $200,000 now in an account that pays interest continuously. What interest rate would they need to accumulate the entire $309,000 in 3 years? (a) The amount that must be deposited is $ (Do not round until the final answer. Then round to the nearest hundredth as needed.) (b) The amount of interest earned will be $. (Do not round until the final answer. Then round to the nearest hundredth as needed.) (c) The additional amount needed in 3 years will be $. (Do not round until the final answer. Then round to the nearest hundredth as needed.) (d) The company will need an interest rate of %. (Do not round until the final answer. Then round to the nearest hundredth as…
1. A small business purchased now for P 500,000.00 will lose P96,000.00 each year for the first four years. An additional investment P300,000.00 is required at the end of fourth year. After 15 years the business can be sold for P700,000.00 . What should be the profit each year from the 5th to 15th year to obtain a rate of return of 25%?
three years ago maxwell invested 6020. In 1 year from today he expects to have 9120. If maxwell expects to earn the same annual return after 1 year from today as the annual rate implied from the past and expected values given in the problem, then how much does maxwell expect to have in 5 years from today? a .) 15328.14 b.)13816.35 c.)15868.14 d.)18224.63
.You are negotiating to make a 7-year loan of $25,000 to Breck Inc. To repay you, Breck will pay $2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year 7. Breck is essentially riskless, so you are confident the payments will be made. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?
As an engineer, you plan to put aside 20% of your yearly income. You expect to make Php1 million in the first year, and then you expect your income to increase by 10,000 each year for the next 6 years. At the interest rate 10% per year, what is the accumulated amount after 6 years? A) Php 1,714,683 B Php 967,893 (c) Php 524,456 D Php 807,723
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $4200 per year. The equipment costs $25000 and has a useful life of 5 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 5 years and dispose of it for nothing. They can lease it for 5 years with an annual lease payment of $5000. If the after-tax interest rate on secured debt issued by company A is 2% and tax rate is 35%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places)

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