
Share repurchase: Share repurchase is the situation when a corporation purchases back its own shares because the company noticed that the shares are undervalued. This decline the number of shares left and enhances the value of the shares of the corporation. The share repurchases increase the corporation’s earnings for a share.
Dividend: The amount that shareholders receive in
To determine:
The method of cash distribution does not matter shareholders.

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Chapter 17 Solutions
Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
- Bond valuation-Semiannual interest Find the value of a bond maturing in 4 years, with a $1,000 par value and a coupon interest rate of 9% (4.5% paid semiannually) if the required return on similar-risk bonds is 13% annual interest. The present value of the bond is $ (Round to the nearest cent.)arrow_forwardYield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to predict its pricing level. For the bond listed below, state whether the price of the bond will be at a premium to par, at par, or at a discount to par. Coupon interest rate 6% Yield to maturity 11% What is the price of the bond in relation to its par value? (Select the best answer below.) ○ A. The bond sells at a discount to par. B. The bond sells at a premium to par. OC. The bond sells at par.arrow_forwardBook value Find the book value for the asset shown in the accompanying table, assuming that MACRS depreciation is being used Elapsed time Recovery Asset A Installed cost $903,000 period (years) 5 since purchase (years) 4 The remaining book value is $ (Round to the nearest dollar.)arrow_forward
- Common stock value: Constant growth The common stock of Barr Labs Inc., trades for $111 per share. Investors expect the company to pay a(n) $1.43 dividend next year, and they expect that dividend to grow at a constant rate forever. If investors require a(n) 15.5% return on this stock, what is the dividend growth rate that they are anticipating? The anticipated dividend growth rate is %. (Round to two decimal places.)arrow_forwardChoosing between two projects with acceptable payback periods Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, president of the company, has set a maximum payback period of 4 years. The cash inflows associated with each project are shown in the following table: a. Determine the payback period of each project. b. Which project is acceptable based on payback period? a. The payback period of project A is years. (Round to two decimal places.) The payback period of project B is years. (Round to two decimal places.) b. Which project is acceptable based on payback period? (Select the best answer below.) ○ Project A would be preferred over project B because the larger cash flows are in the later years of the project. ○ Project B would be preferred over project A because the larger cash flows are in the early years of the project.arrow_forwardWeekend Warriors, Inc., has 35% debt and 65% equity in its capital structure. The firm's estimated after-tax cost of debt is 5% and its estimated cost of equity is 13%. Determine the firm's weighted average cost of capital (WACC). Weekend Warriors' weighted average cost of capital (WACC) is %. (Round to two decimal places.)arrow_forward
- Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $20,700; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $36,000 and requires $5,100 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $24,500 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $ (Round to the nearest dollar.)arrow_forwardYield to maturity The Salem Company bond currently sells for $1,237.92, has a coupon interest rate of 15% and a $1000 par value, pays interest annually, and has 15 years to maturity. a. Calculate the yield to maturity (YTM) on this bond. b. Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond. a. The yield to maturity on this bond is %. (Round to three decimal places.) b. Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond. (Select the best answer below.) ○ A. The market value of the bond approaches its par value as the time to maturity increases. The yield to maturity approaches the coupon interest rate as the time to maturity increases. B. The market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity declines. ○…arrow_forwardPreferred stock valuation Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $60 and pays an annual dividend of $6.70 per share. Similar-risk preferred stocks are currently earning an annual rate of return of 7.7%. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 9.5%? a. The market value of the outstanding preferred stock is $ per share. (Round to the nearest cent.) per share. (Round to the nearest cent.) b. If the required return on similar-risk preferred stocks has risen to 9.5%, the value of the stock will be $ If an investor purchased the preferred stock at the value calculated in part a and sells the stock when the required return on similar-risk preferred stocks has risen to 9.5%, the…arrow_forward
- Retained earnings versus new common stock Using the data for a firm shown in the following table, calculate the cost of retained earnings and the cost of new common stock using the constant-growth valuation model. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Current market Dividend price per share growth rate $54.00 7% Projected dividend per share next year $2.16 a. The cost of retained earnings is ☐ %. (Round to two decimal places.) b. The cost of new common stock is %. (Round to two decimal places.) Underpricing per share $2.00 Flotation cost per share $2.25arrow_forwardBond interest payments before and after taxes Charter Corp. issued 1,877 debentures with a $1,000 par value and 5% coupon rate. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter pays a 21% corporate tax, what is the company's net after-tax interest cost associated with this bond issue? (Round to the nearest dollar.) (Round to the nearest dollar.) a. The dollar amount of interest per bond an investor can expect to receive each year from Charter is $ b. Charter's total interest expense per year associated with this bond issue is $ c. Assuming that Charter is in a 21% corporate tax bracket, the company's net after-tax interest cost associated with this bond issue is $ to the nearest dollar.) (Roundarrow_forwardAfter-tax cost of debt Personal Finance Problem Bella Wans is interested in buying a new motorcycle. She has decided to borrow the money to pay the $20,000 purchase price of the bike. She is in the 35% income tax bracket. She can either borrow the money at an interest rate of 4% from the motorcycle dealer, or she could take out a second mortgage on her home. That mortgage would come with an interest rate of 9%. Interest payments on the mortgage would be tax deductible for Bella, but interest payments on the loan from the motorcycle dealer could not be deducted on Bella's federal tax return. a. Calculate the after-tax cost of borrowing from the motorcycle dealership. b. Calculate the after-tax cost of borrowing through a second mortgage on Rella's home a. The after-tax cost of borrowing from the motorcycle dealership is %. (Round to the nearest whole percentage.) b. The after-tax cost of borrowing through a second mortgage is %. (Round to two decimal places.) c. Which source of…arrow_forward
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