EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Chapter 14, Problem 19P
Summary Introduction
To Determine: The beta of IN stocks.
Beta is an important indicator of the risk of a security. It measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
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Indell stock has a current market value of $130 million and a beta of 1.50. Indell currently has risk-free debt as well.
The firm decides to change its capital structure by issuing $27.79 million in additional risk-free debt, and then using
this $27.79 million plus another $17 million in cash to repurchase stock. With perfect capital markets, what will the
beta of Indell stock be after this transaction?
The beta of Indell stock after the recapitalization is
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(Round to two decimal places.)
Please see image for question. Thank you
Choose one appropriate statement.
1. The movement of stock prices have certain patterns, and investors can make profits by
studying such patterns.
2. If a hedge fund manager believes that Toyota will going to outperform Honda she will
short stocks of both companies.
3. When one share of Apple stock is being traded at $150, the stock market believes that you
can always sell a share of Apple stock for at least $150 in the future.
4. O An undervalued stock should outperform the market in the long run.
5. O Diversification is not appropriate because it would prevent investors from capitalizing on
the superior return that can result from a concentrated holding of the stock of one successful
company.
Chapter 14 Solutions
EBK CORPORATE FINANCE
Ch. 14.1 - How does the risk and cost of capital of levered...Ch. 14.2 - Why are investors indifferent to the firms capital...Ch. 14.2 - What is a market value balance sheet?Ch. 14.2 - In a perfect capital market, how will a firms...Ch. 14.3 - How do we compute the weighted average cost of...Ch. 14.3 - With perfect capital markets, as a firm increases...Ch. 14.4 - If a change in leverage raises a firm's earnings...Ch. 14.4 - True or False: When a firm issues equity, it...Ch. 14.5 - Consider the questions facing Dan Harris, CFO of...Ch. 14.5 - Prob. 2CC
Ch. 14 - Consider a project with free cash flows in one...Ch. 14 - You are an entrepreneur starting a biotechnology...Ch. 14 - Acort Industries owns assets that will have an 80%...Ch. 14 - Wolfrum Technology (WT) has no debt. Its assets...Ch. 14 - Suppose there are no taxes. Firm ABC has no debt,...Ch. 14 - Suppose Alpha Industries and Omega Technology have...Ch. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Zetatron is an all-equity firm with 100 million...Ch. 14 - Explain what is wrong with the following argument:...Ch. 14 - Consider the entrepreneur described in Section...Ch. 14 - Hardmon Enterprises is currently an all-equity...Ch. 14 - Suppose Visa Inc. (V) has no debt and an equity...Ch. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Hartford Mining has 50 million shares that are...Ch. 14 - Mercer Corp. has 10 million shares outstanding and...Ch. 14 - In mid-2015 Qualcomm Inc. had 11 billion in debt,...Ch. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Yerba Industries is an all-equity firm whose stock...Ch. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24P
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- You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $0.90 a share at the end of the year and has a beta of 0.40. The risk-free rate is 2.40%, and the market risk premium is 4.40%. Keller currently sells for $103.00 a share, and its dividend is expected to grow at some constant rate g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 5 years? $115.55 $121.07 $125.05arrow_forwardCan you guys help please? Answer is Darrow_forwardThe Angelina Corporation’s common stock has a beta of 1.6. If the risk-free rate is 4.7 percent and the expected return on the market is 13 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital: _______?arrow_forward
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY