Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has the right to be involved in the election of itsdirectors, who are responsible for managing the company and achieving the company's objectives.True or False: Larry will receive dividends together with preferred stockholders.O FalseO TrueLarry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. The company's stock currently is valued at$45.00 per share. The company needs to raise new capital to invest in production. The company is looking to issue 5,000 new shares at a price of$36.00 per share. Larry worries about the value of his investment.Larry's current investment in the company isinvestment will be worthThis scenario is an example ofIf the company issues new shares and Larry makes no additional purchase, Larry'sLarry could be protected if the firm's corporate charter includes aIf Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will becomeprovision.

The ownership stake of an investor in a company refers to the portion of the company that the…

Answered: True or False: Larry will receive…

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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Similar questions

The Turnip Company plans to issue preferred stock. Currently, the company’s stock sells for $110. Once new stock is issued, the Turnip Company would receive only $90. The dividend rate is 8%, and the par value of the stock is $100. Compute the cost of capital of the stock to your firm. Show all work.
2. An analyst for Acme, R. Runner, has recommended that Peter the Anteater purchase shares in a private firm (a firm that is not traded on any exchange) called Dynamite Corp. Dynamite has 30% debt and 70% equity. R. Runner believes that Dynamite will generate a return of 10% over the next year. Since Y. Lee is new to the job, he decides to do a little research on his own. He finds a company, Explosions Unlimited, that has very similar business as Dynamite. Explosions has an equity beta of 1.05 and is composed of 40% debt and 60% equity. Should Peter the Anteater buy the stock? The expected return on the market is 12% and the expected risk-free rate is 5%.
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Cornwall Enterprises. Unfortunately, you will be the only person voting for you. The company has 720,000 shares outstanding, and the stock currently sells for $48. Assume the company uses cumulative voting and there are four seats in the current election. How much will it cost you to buy a seat? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Total cost
2) You bought 1500 shares of Microsoft one year ago for $120 per share. Microsoft paid a $2 (per-share) dividend last year. The current stock price is $105. a. What rate of return did you earn from your Microsoft investment? b. Ifinflation rate over the last year was 4%, what is your real rate of return? c. Rather than buying 1500 Microsoft shares a year ago, you instead sold them short. What is the rate of return from your Microsoft trade now? Focu MacBook Pro A
After learning how to value a stock in his Corporate Finance class, Mark Stark decided to put his knowledge into practice and use the constant growth rate model to value El Tomate Feliz Co. He found that the company was severely undervalued. The stock was trading at $50 per share, but he valued it at $120 per share. Mark complained: “I thought that El Tomate Feliz was a steal and bought as many shares as I could, but the price didn’t go up. I have waited a year, and the price has not changed that much.” Lower necessary rate of return - Mark would have estimated his cost of equity or required rate of return at lower levels, resulting in better intrinsic values as a result of the lower discount rate. What does this mean,” …Mark would have estimated his cost of equity or required rate of return at lower levels"
Executive Chalk is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds to buy back common stock. a. How is the market price of the stock affected by the announcement? b. How many shares can the company buy back with the $160 million of new debt that it issues? Note: Enter your answer in millions. c-1. What is the market value of the firm (equity plus debt) after the change in capital structure? Note: Enter your answer in millions. c-2. Did the market value of the firm change? d. What is the debt ratio after the change in structure? Note: Round your answer to 2 decimal places. e. Who (if anyone) gains or loses? a. Effect on market price b. Shares repurchased c-1. Market value c-2. Did the market value of the firm change? d. Debt ratio e. Who (if anyone) gains or loses? Stock price remains the same. 160 million 250 million $ No 1.78 No one gains or…
Hargrave Kitchen & Bath has 6 million shares outstanding at a price of $33.25 per share. The company has decided to raise capital through a rights issue. All shareholders will be issued one right per share. For every five rights held by the stockholder, they can buy one share at a price of $33.25. How much money will this raise, if all shareholders exercise their rights? Round to one decimal place. A. $30.0 million B. $33.3 million C. $39.9 million D. $234.4 million E. $199.5 million
John invested $12,000 in the stock of Hyper Cyber. Eight years later, Hyper Cyber's shares reached $125,000, but John held onto the shares in the belief that their price would double in the next five years. Unfortunately, Hyper Cyber did not double. Rather the market value of John's shares today is $4,000. If the shares were sold today and the proceeds invested in another investment, they would likely earn 5% per annum. Which of the following tems and values is correct? a. $250,000 is the opportunity cost b. $12,000 is the sunk cost C. $2,000 is the opportunity cost d. $125,000 is the opportunity cost of selling the shares today
You own 1,000 shares of stock in Avondale Corp. You will receive a $.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 10 percent. a. What is the current share price of your stock (ignoring taxes)? b. If you would rather have equal dividends in each of the next two years by creating homemade dividends, what would be the cash flow for Year 1 and Year 2?
Lemansky Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure with 35 percent debt. There are currently 5,000 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $29,680. The interest rate on new debt is 11 percent and there are no taxes. a. Rebecca owns $10,000 worth of stock in the company. If the firm has a 100 percent payout, what is her cash flow? Note: Do not round intermediate calculations and round your answer to 2 decimal places, 32.16. b. What would her cash flow be under the new capital structure assuming that she keeps all of her shares? Note: Do not round intermediate calculations and round your answer to 2 decimal places, 32.16. c. Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow. Note: Do not round intermediate calculations and round your answer to the…
Assume that you own 60 shares of common stock of a company, that you have been receiving cash dividends of $5 per share per year, and that the company has a 6-for-5 stock split Required: a. How many shares of common stock will you own after the stock split? b. What new cash dividend per share amount will result in the same total dividend income as you received before the stock split? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. What stock dividend percentage could have accomplished the same end result as the 6-for-5 stock split? a. Shares of common stock b. New cash dividend c. Stock dividend per share. %
Corporations often distribute profits to their shareholders in the form of dividends, which are simply checks mailed out to shareholders. Suppose that you have the chance to buy a share in a fashion company called Rogue Designs for $35 and that the company will pay dividends of $2 per year on that share every year. What is the annual percentage rate of return? Next, suppose that you and other investors could get a 12 percent per year rate of return by owning the stocks of other very similar fashion companies. If investors care only about rates of return, what should happen to the share price of Rogue Designs? (Hint: This is an arbitrage situation.)

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