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Fundamentals Of Corporate Finance, 9th Edition
9th Edition
ISBN: 9781260052220
Author: Richard Brealey; Stewart Myers; Alan Marcus
Publisher: McGraw-Hill Education
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Question
Chapter 14, Problem 7QP
a.
Summary Introduction
To compute: The changes in the accounts of company F.
b.
Summary Introduction
To compute: The changes in company in case of repurchase of 2 million shares.
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the balance sheet look like after the dividends are paid?
Q.4 Rudolph Corporation is evaluating an extra dividend versus a share repurchase. In either case,
$11,000 would be spent. Current earnings are $1.40 per share, and the stock currently sells for $58
per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections in answering the
first two questions.
(a) Evaluate the two alternatives in terms of the effect on the price per share of the stock and
shareholder wealth.
(b) What will be the effect on Rudolph's EPS and P/E ratio under the two different scenarios?
(c) In the real world, provided tax deductions are made, which of these actions would you
recommend? Why?
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END OF ASSIGNMENT
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Suppose that investors cumulatively short-sell 6 million shares of a stock and the share price appreciates from $200 to $1100. In
the meantime, the stock pays a dividend of $20 per share. What is the total amount of loss that the short sellers suffer from their
position? You can ignore shorting fees and assume all interest rates are zero).
A. $5.5 billion
B. $7.3 billion
C. $6.1 billion
O D. $4.3 billion
.Suppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account.
a.If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Xtel pays no dividends.
b.If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call?
c.Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.13.
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Fundamentals Of Corporate Finance, 9th Edition
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