Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 16, Problem 19PS
Summary Introduction

To determine: The manner in which value company L if it paid $500,000 in cash dividends year in and year out, with no expected growth or decline.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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“Sum of money is worth more now than the same sum of money in the future”.Critically evaluate the meaning of the above by differentiating the present valuewith the future value of money.  ii Tesco Company currently pays a dividend of Rs. 2.00 per share and this dividendare expected to grow at a 15% annual rate for 3 years, after which it is expectedto grow at an 8 % rate forever. What value could you place on the equity if a 9 %rate of return were required?  iii Amaya Construction is a company engaged in the construction of Roads. On 1January 2018, it issued 5,000 5-year bonds with a par value of Rs.1,000 per bond.They have a current market price of Rs.975, carry an annual coupon rate of 9%and are callable at Rs. 1050 any time in 3rd year. The interest rate in year 3 is 10%.Estimate the yield to call (YTC) and yield to maturity (YTM) and tell which rateis a better estimate of the expected rate of return on the bond.
Suppose instead that the company is about to pay a dividend of $2.00 per share. You also learn that the company is expected to have net income of $100 million, dividends of $50 million, and total equity of $1.5 billion (and that these relationships are expected to be stable). If the relevant required rate of return is 10%, what is the intrinsic value per share of the company’s stock?
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