Explain how a shareholder can, without knowing the future, diversify away the unsystematic risk of your company's stock potentially suffering a return that unexpectedly turns out to equal the expected return in c.1 minus 88%. Expected return in c1 = 9.44%
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Explain how a shareholder can, without knowing the future, diversify away the unsystematic risk of your company's stock potentially suffering a return that unexpectedly turns out to equal the expected return in c.1 minus 88%.
Expected return in c1 = 9.44%
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- S. Bouchard and Company hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: DO $0.85; PO $22.00; and g 6.00% (constant). The CEO thinks, however, that the stock price is temporanly depressed, and that it will soon rise to $34.00. Based on the DCF approach, by how much would the cost of common from retained earnings change if the stock price changes as the CEO expects?.please respond to both. A stock with a P/E of 5 must be worth less than a stock with a P/E of 14. True False A company will pay dividend of $3 in one year and currently has a price of $24. The capital gains yield is 9%. What is the company’s required return (r)?Samuel Inc., hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $0.85; P0 = $22.00; and g = 6.00% (constant). The CEO thinks, however, that the stock price is temporarily depressed, and that it will soon rise to $34.00. Based on the DCF approach, by how much would the cost of equity from retained earnings change if the stock price changes as the CEO expects? Do not round your intermediate calculations.
- Presently, your company’s Face Value of Equity Share RO 10 and Market Value of your Share in MSM is RO 25 per share. In order to increase the trading volume and market liquidity of your company stock, will you suggest the management to go for stock split? Explain your management about concept of stock slip with the advantage of splitting the stock of your company with the current scenario.Scotto manufacturing is a mature firm in the machine tool component industry. The firm’s most recent common stock dividend was $2.40 per share. Because of its maturity as well as its stable sales and earnings, the firm’s management feels that dividends will remain at the current level for the foreseeable future. If the required return is 12%, what will be the value of Scotto’s common stock? If the firm’s risk as perceived by market participants suddenly increases, causing the required return to rise to 20%, what will be the common stock value? Judging on the basis of your findings in parts a, and b, what impact does risk have on value? Explain.S. Bouchard and Company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $0.85; P0 = $22.00; and g = 6.00% (constant). The CEO thinks, however, that the stock price is temporarily depressed, and that it will soon rise to $34.00. Based on the DCF approach, by how much would the cost of equity from retained earnings change if the stock price changes as the CEO expects? Do not round your intermediate calculations.
- Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? The market risk premium declines. The flotation costs associated with issuing new common stock increase. The company's beta increases. Expected inflation increases. The flotation costs associated with issuing preferred stock increase.please respond to both. A company that has a stock price of $200 must have a higher market capitalization than a company with a stock price of $2. True False Stock A has a constant dividend growth rate of 5% and Stock B has constant dividend growth rate of 6%. Both stocks have a dividend yield of 5%. Which stock has the higher required return? A B A=B Not sureWorldTrans is considering a 8-for-4 stock split. The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 6% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split? Group of answer choices $40.15 $41.34 $47.30 $31.40 $39.75
- An investor is considering purchasing one of the following three stocks. Stock X has a market capitalization of $77 billion, pays a relatively high dividend with little increase in earnings, and has a P/E ratio of 1212. Stock Y has a market capitalization of $6464 billion but does not currently pay a dividend. Stock Y has a P/E ratio of 3939. Stock Z, a housing industry company, has a market capitalization of $804804 million and a P/E of 1717. a. Classify these stocks according to their market capitalizations. b. Which of the three would you classify as a growth stock? Why? c. Which stock would be most appropriate for an aggressive investor? d. Which stock would be most appropriate for someone seeking a combination of safety and earnings? Question content area bottom Part 1 a. Stock X is classified as a (1) stock. (Select from the drop-down menu.) Part 2 Stock Y is classified as a (2) stock. (Select from the drop-down menu.) Part 3 Stock Z is…Which of the following statements is CORRECT? a. If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. b. The stock valuation model, P0 = D1/(rs − g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. c. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. d. The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time. e. The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.Schalheim Sisters Inc. has always paid out all of its earnings as dividends; hence, the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? A. The flotation costs associated with issuing preferred stock increase. B. The company's beta increases. C. The flotation costs associated with issuing new common stock increase. D. The market risk premium declines. E. Expected inflation increases.