The director’s statement based on constant-growth dividend discount model . Introduction: Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

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Answer 1

Question

Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

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Assume that the following statements of financial position are stated and a book value. Alpha Corporation Current Assets $15,000 Current Liabilities $5,400 Net Fixed Assets 39,000 Long-Term Debt 10,100   Equity 38,500     $54,000   $54,000 Beta Corporation Current Assets $3,600 Current Liabilities $1,400 Net Fixed Assets 6,700 Long-Term Debt 2,100     Equity 6,800   $10,300   $10,300 Suppose the fair market value of Beta’s fixed assets is $9,500 rather than the $6,700 book value shown. Alpha pays $17,300 for Beta and raises the needed funds through an issue of long-term debt. Construct the post-merger statement of financial position now, assuming that the purchase method of accounting is used.

The shareholders of Barley Corporation have voted in favor of a buyout offer from Wheat Corporation. Information about each firm is given here: Barley Wheat Price/earnings ratio 13.5 21 Shares outstanding 90,000 210,000 Earnings $180,000 $810,000 Barley shareholders will receive one share of Wheat stock for every three shares they hold of Barley. Required What will the EPS of Wheat be after the merger? What will be the P/E ratio if the NPV of the acquisition is 0? What must Wheat feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover?

Answer 2

Question

Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

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Answer 3

Question

Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

Expert Solution & Answer

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Answer 4

Question

Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

Expert Solution & Answer

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Answer 5

Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

Answer 6

Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

Answer 7

Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

Answer 8

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

Answer 9

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 18 - Prob. 1PS Ch. 18 - Prob. 2PS Ch. 18 - Prob. 3PS Ch. 18 - Prob. 4PS Ch. 18 - Prob. 5PS Ch. 18 - Prob. 6PS Ch. 18 - Prob. 7PS Ch. 18 - Prob. 8PS Ch. 18 - Prob. 9PS Ch. 18 - Prob. 10PS

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To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

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Chapter 18 Solutions

Videos

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout. Introduction: Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

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Chapter 18 Solutions

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.