The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year:BoomNormal economyRecessionDividend$0StockPrice$ 18126334The common stock of Leaning Tower of Pita Inc. is selling for $80 and offers these payoffs next year:BoomNormal economyRecessionRequired:StockDividendPrice$ 8$24049000Calculate the expected rate of return and standard deviation of a portfolio half invested in Escapist and half in Leaning Towerof Pita. All three economic scenarios are equally likely to occur. (Do not round intermediate calculations. Round your answersto 2 decimal places.)Expected return42.50%Standard deviation%

The image shows a finance problem where you need to calculate the expected return and standard…

Answered: The common stock of Escapist Films…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?
Best Corporation is expected to pay $.60 next year and $1.10 the following year and $1.25 each year thereafter. If the required return is .14, what is the priice of the stock? $7.40 $2.95 $8.24 $2.22
Mclver's Meals, Inc. currently pays a OMR2 annual dividend. Investors believe that dividends will grow at 20% next year, 12% annually for the two years after that, and 6% annually thereafter. Assume the required return is 10%. What is the current market price of the stock? Select one: O a. OMR69.30 O b.OMR75.20 O c. OMR66.60 O d. OMR60.80 O e. OMR54.99
A company has an issue of preferred stock outstanding that pays a $2.30 dividend every year in perpetuity. If this issue currently sells for $41.82 per share, what is the required rate of return? Please use a HP 10bii+ Financial Calculator
Islander Corporation's common stock will pay a dividend of $3.50 one year from now. The annual dividend growth rate is 6% over two years after that. You plan to buy the stock now and sell at the end of third year for $80. At what price must you buy in order to receive your required return of 17%? Group of answer choices $56.71 $62.29 $58.11 $55.37 $29.17
Beta Corporation is expected to pay the following dividends per share over the next two years, respectively: $5 and $7. If you expect to be able to sell the stock for $100 in next two years and your required rate of return is 10%, what is the most that you should be willing to pay for a share of this stock today? O A. $97.92 O B. $112 O c. $92.97 O D. $85.46
The common stock of Shepard Auto sells for $47.92 per share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock? 4.84% O 6.41% O 9.92% O 6.14% A Moving to another question will save this response. Question 10 of 30
You are considering the purchase of XYZ Company's common stock which will pay a $ 1.00 per share dividend one year from the date of purchase. The dividend is expected to grow at the rate of 4% per year. If the appropriate discount rate for this investment is 14%, what is the price of one share of this stock? A) $7.14 B) $10.00 C) $25.00 D) Cannot be determined without
Kelly Enterprises stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 9.75% per year. The required rate of return on the stock, rs, 11.50%. What is the stock's expected price 5 years from now? Select the correct answer. Ca. $58.93. Ob. $56.13 Oc. $58.23 Od. $56.83 Ce. $57.53
Hudson Corporation will pay a dividend of $4.30 per share next year. The company pledges to increase its dividend by 6.30 percent per year indefinitely. If you require a return of 9.10 percent on your investment, how much will you pay for the company's stock today? Multiple Choice $153.57 $26.27 $147.43 $144.47 $159.71
EMKA corporation is going to pay a dividend of $1.5, $2, and $2.5 each year for the next three years. Afterwards, it is planing to increas the dividends at a constant rate of 10% indifinitely. How much should the stock be sold for if the required rate of return is 12%? Select one: a.$104.17 b.$102.59 c.$100.01 d.$105.64
What is the rate of return if you purchase a stock today for $35 and sell it in five years for $43? Assume the stock pays an annual dividend of $2.8. Answer choices: 10.43% 12.01% 11.62% 9.79%

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Fundamentals Of Financial Management, Concise Edi…

Finance

ISBN:

9781337902571

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Fundamentals Of Financial Management, Concise Edi…

Finance

ISBN:

9781337902571

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS