PRINCIPLES OF CORPORATE FINANCE-LL>BI<
12th Edition
ISBN: 9781260727395
Author: BREALEY
Publisher: MCG
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Textbook Question
Chapter 4, Problem 1PS
True/false True or false?
- a. All stocks in an equivalent-risk class are priced to offer the same expected
rate of return . - b. The value of a share equals the PV of future dividends per share.
a)
Expert Solution
Summary Introduction
To discuss: Whether the statement is true or false.
Explanation of Solution
Given statement:
Mostly all the stock which have same equivalent risk are always priced to provide similar expected rate of return.
Justification:
The given statement is true all the stocks which have equivalent risk are priced to provide similar expected rate of mainly the market risk.
Hence, the statement is true.
b)
Expert Solution
Summary Introduction
To discuss: Whether the statement is true or false.
Explanation of Solution
Given statement:
Value of a share is equal to the present value of future dividend per share
Justification:
It is true that value of a share is equal to the present value of future dividend per share
Hence, the statement is true.
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Chapter 4 Solutions
PRINCIPLES OF CORPORATE FINANCE-LL>BI<
Ch. 4 - True/false True or false? a. All stocks in an...Ch. 4 - Dividend discount model Respond briefly to the...Ch. 4 - Dividend discount model Company X is expected to...Ch. 4 - Dividend discount model Company Y does not plow...Ch. 4 - Constant-growth DCF model Company Zs earnings and...Ch. 4 - Dividend discount model Company Z-prime is like Z...Ch. 4 - Dividend discount model If company Z (see Problem...Ch. 4 - Prob. 8PSCh. 4 - Prob. 9PSCh. 4 - Free cash flow Under what conditions does r, a...
Ch. 4 - Prob. 11PSCh. 4 - Prob. 12PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 23PSCh. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - DCF and free cash flow Permian Partners (PP)...Ch. 4 - DCF and free cash flow Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing Tree cash flow Phoenix Corp. faltered in...Ch. 4 - Constant-growth DCF formula The constant-growth...Ch. 4 - DCF valuation Portfolio managers are frequently...Ch. 4 - Valuing a business Construct a new version of...
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- What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.arrow_forwardAssume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 7.0%, and that the market risk premium is 5%. What is the required rate of return on the firms stock?arrow_forwardCalculate the correlation coefficient between Blandy and the market. Use this and the previously calculated (or given) standard deviations of Blandy and the market to estimate Blandy’s beta. Does Blandy contribute more or less risk to a well-diversified portfolio than does the average stock? Use the SML to estimate Blandy’s required return.arrow_forward
- You are examining three different shares. Share A has expected return -0.30%, beta -0.49, and volatility 29.00%. Share B has expected return 9.80%, beta 1.09, and volatility 24.00%. Finally, share C has expected return 8.60%, beta 0.88, and volatility 13.00%. The risk free rate is 2.70%, while the market price of risk is 7.00%. According to the CAPM, which share is undervalued?arrow_forwardAssume you know the expected and required rate of returns of the following stocks. Explainwhich of the following stocks are undervalued, overvalued and fairly valued. Stock Expected rate of return Required rate of return Evaluation X 10 12 ? Y 6 5 ? Z 4 4 ?arrow_forward
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