Robert Gillman, an equity research analyst at Gman Advisers, beleves in efficent markets. He has been fellowing the mining industry for the past 10 years and needs to determine the constant growth rate that he should une whle valuing Pan Asa Mining Ce. Robert has the following information available: Pan Asia Mining Ce. stock (Ticker: PAMC) is trading at 16.25. • The company's stock is expected to pay a year-end dividend of s0.78 that is expected to grew at a certain ate • The stock's expected rate of return is 7.80%. Based on the information just given, what will be Robert's forecast of PANCY growth rate? O 7.75% O 3.00% O 2.49% O4.50% Which of the following statements accurately describes the relationship between earnings andividends when all ether factors are held constant? Retaining a higher percentage of earnings will result in a lower growth rate O Long-run earnings growth will decrease when fiems retain earnings and reinvest them in the business O All else being equal, growth in dividends requires growth in earnings.

Robert Gillman, an equity research analyst at Gman Advisers, beleves in efficent markets. He has been fellowing the mining industry for the past 10 years and needs to determine the constant growth rate that he should une whle valuing Pan Asa Mining Ce. Robert has the following information available: Pan Asia Mining Ce. stock (Ticker: PAMC) is trading at 16.25. • The company's stock is expected to pay a year-end dividend of s0.78 that is expected to grew at a certain ate • The stock's expected rate of return is 7.80%. Based on the information just given, what will be Robert's forecast of PANCY growth rate? O 7.75% O 3.00% O 2.49% O4.50% Which of the following statements accurately describes the relationship between earnings andividends when all ether factors are held constant? Retaining a higher percentage of earnings will result in a lower growth rate O Long-run earnings growth will decrease when fiems retain earnings and reinvest them in the business O All else being equal, growth in dividends requires growth in earnings.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 10P

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Hager’s Home Repair Company, a regional hardware chain, which specializes in “do-it-yourself” materials and equipment rentals, is considering an acquisition of Lyon Lighting (LL). Doug Zona, Hager’s treasurer and your boss, has been asked to place a value on the target and he has enlisted your help. LL has 20 million shares of stock trading at $12 per share. Security analysts estimate LL’s beta to be 1.25. The risk-free rate is 5.5% and the market risk premium is 4%. LL’s capital structure is 20% financed with debt at an 8% interest rate; any additional debt due to the acquisition also will have an 8% rate. LL has a 25% federal-plus-state tax rate, which will not change due to the acquisition. The following data incorporate expected synergies and required levels of total net operating capital for LL should Hager’s complete the acquisition. The forecasted interest expense includes the combined interest on LL’s existing debt and on new debt. After 2024, all items are expected to grow at a constant 6% rate. Note: aDebt is added on the first day of the year, so the 2019 debt is LL’s debt prior to the acquisition. Hager’s management is new to the merger game, so Zona has been asked to answer some basic questions about mergers as well as to perform the merger analysis. To structure the task, Zona has developed the following questions, which you must answer and then defend to Hager’s board: Why can’t we estimate LL’s value to Hager’s by discounting the FCFs at the WACC? What method is appropriate? Use the projections and other data to determine the LL division’s free cash flows and interest tax savings for 2020 through 2024. Notice that the LL division’s sales are expected to grow rapidly during the first years before leveling off at a sustainable long-term growth rate.
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