Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 8, Problem 2MC
Summary Introduction
Case Summary:
Person X is ready to make his first investment. For the purpose of that he saved $10,000 and he has three alternative investment opportunities. In the first alternative, the par
The second alternative is company B’s stock paying a dividend of $2.63 and selling for $26.25. The third alternative is company E vending stock for $60 with a par value of $5 and dividend of 1.88. The company E expected to grow in the predictable future.
To determine: The person X should choose which investment.
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Your bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment? Support your answer with calculations
You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money:
Capital Cities ABC, Inc. bonds with a par value of $1,000 and a coupon interest rate of 8.75 percent, are selling for $1,314 and mature in 12 years.
Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50.
Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32 dividend and the firm’s earnings per share has increased from $1.49 to $3.06 in the past five years. The firm expects to grow at the same rate for the foreseeable future.
Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions.
a. Calculate the value of each investment based on your required rate of return.
b. Which investment would you select? Why?
c. Assume Emerson Electric’s…
You have finally saved $10,000 and are ready to make your first investment. You have the following three
alternatives for investing that money:
• Capital Cities ABC, Inc., bonds, which have a par value of $1,000 and a coupon interest rate of 8.75
percent, are selling for $1,314 and mature in 12 years.
• Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50.
• Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32 dividend, and the
firm's dividend growth rate of last five years is 4 %. The firm expects to grow at the same rate for the
foreseeable future.
Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferred
stock, and 15 percent for the common stock.
Using this information, answer the following questions.
a. Calculate the value of each investment based on your required rate of return.
b. Which investment would you select? Why?
Chapter 8 Solutions
Foundations Of Finance
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Define investors expected rate of return.Ch. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - (Preferred stock valuation) What is the value of a...Ch. 8 - (Preferred stock valuation) The preferred stock of...
Ch. 8 - Prob. 3SPCh. 8 - Haney, Inc.s preferred stock is selling for 33 per...Ch. 8 - Calculate the value of a preferred stock that pays...Ch. 8 - You are considering an investment in one of two...Ch. 8 - You are considering an investment in Minnix...Ch. 8 - Mosser Corporations common stock paid 1.32 in...Ch. 8 - The Cammack Corporation wants to achieve a steady...Ch. 8 - (Common stock valuation) Dalton Inc., has an 11.5...Ch. 8 - (Common stock valuation) Bates, Inc. pays a...Ch. 8 - You intend to purchase Dorchester common stock at...Ch. 8 - (Common stock valuation) Herrera Motor, Inc. paid...Ch. 8 - (Measuring growth) Given that a firms return on...Ch. 8 - (Common stock valuation) Sanfords common stock is...Ch. 8 - (Common stock valuation) The common stock of NCP...Ch. 8 - (Measuring growth) Septian, Inc.s return on equity...Ch. 8 - Prob. 18SPCh. 8 - Prob. 19SPCh. 8 - (Preferred stockholder expected return) You own...Ch. 8 - (Preferred stock expected return) You are planning...Ch. 8 - (Preferred stockholder expected return) Zust...Ch. 8 - (Preferred stockholder expected return) You own...Ch. 8 - Prob. 24SPCh. 8 - Prob. 25SPCh. 8 - Prob. 26SPCh. 8 - Prob. 27SPCh. 8 - (Common stockholder expected return) Alyward ...Ch. 8 - (Common stockholder expected return) Bennett,...Ch. 8 - (Common stockholder expected return) The common...Ch. 8 - (Common stockholder expected return) The market...Ch. 8 - Prob. 32SPCh. 8 - Prob. 33SPCh. 8 - Prob. 2MCCh. 8 - Assume Emerson Electrics managers expect earnings...Ch. 8 - Prob. 4MC
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