Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 13, Problem 1.2MC
The executive vice-president in charge of finance believes the price will not fall in proportion to the size of the split and will only fall 45 percent because she thinks the pre-split price is above the optimal price range. If she is correct, what will be my net gain from the split?
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Consider a decision maker who is comfortable with an investment decision that has a50 percent chance of earning $25,000 and a 50 percent chance of losing $12,500, but notwith any larger investments that have the same relative payoffs.
a. Write the equation for the exponential function that approximates this decision maker’sutility function
Explain the following:
The WACC is a weighted average of the costs of debt, preferred stock, and common equity.Would the WACC be different if the equity for the coming year came solely in the formof retained earnings versus some equity from the sale of new common stock? Would thecalculated WACC depend in any way on the size of the capital budget? How mightdividend policy affect the WACC?
Assume that the risk-free rate increases. What impact would this have on the cost of debt?What impact would it have on the cost of equity?
Note: Explain Shortly And To the Point Answer
Assume that Sidney Johnson is confident of her estimates of all the variables that affect the project's cash flows except unit sales and sales price: If product acceptance is poor, unit sales would be only 800 units a year and the unit price would only be $160; a strong consumer response would produce sales of 1,200 units and a unit price of $240. Sidney believes that there is a 25% chance of poor acceptance, a 25% chance of excellent acceptance, and a 50% chance of average acceptance (the base case).
1.) What is scenario analysis?
2.) What is the worst-case NPV? The best-case NPV?
3.) Use the worst-,base-, and best-case NPV's and probabilities of occurrence to find the project's expected NPV, as well as the NPV's standard deviation and coefficient of variation
Chapter 13 Solutions
Foundations Of Finance
Ch. 13 - What is meant by the term dividend payout ratio?Ch. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Prob. 7RQCh. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 1SPCh. 13 - (Dividend policy and the issue of new shares of...Ch. 13 - Prob. 3SPCh. 13 - (Dividend policy and stock prices) The issue as to...Ch. 13 - (Residual dividend policy) FarmCo, Inc. follows a...Ch. 13 - (Legal restrictions on dividend payments) Describe...Ch. 13 - (Practical considerations in setting dividend...Ch. 13 - Prob. 8SPCh. 13 - Prob. 9SPCh. 13 - Prob. 10SPCh. 13 - Prob. 11SPCh. 13 - Prob. 12SPCh. 13 - Prob. 13SPCh. 13 - Prob. 14SPCh. 13 - Prob. 15SPCh. 13 - Prob. 16SPCh. 13 - Prob. 1.1MCCh. 13 - The executive vice-president in charge of finance...Ch. 13 - Prob. 2.1MCCh. 13 - Prob. 2.2MCCh. 13 - Prob. 2.3MC
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