1. This a simple exercise to get you used to taxes in DDM calculation. A firm is expected to pay its next dividend of $2 one year from now. This dividend will grow at a constant rate of 5%. The cost of equity for the firm is 10%.
a) If all investors pay (and are expected to continue paying) income taxes on all income at 30%, what is the price of the stock?
b) Now, if one investor pays no tax (due to special circumstances) but all other (large number) investors pay taxes at 30% how will your response change?
Solution 1:
a) The DDM now changes to P = 2*(1-30%)/(10% - 5%) = $28
b) The response would not change. The tax rate is the rate for the marginal investor. Since there are a large number of investors that pay 30%, vs. only one at a different rate, the 30% rate investor will always be the marginal investor. However, things are different when it is not this overwhelming. In those situations, you cannot get an exact answer.
2. A firm is going to repurchase stock. Its (market value) balance sheet as of now looks as follows:
Cash = $150,000
Debt = 0
Other assets = $850,000
Equity = $1 million
Value of firm = $1 million
Value of firm = $1 million
Number of shares = 100,000. Price per share = $10
Suppose the management are aware of information that there are growth opportunities with NPVGO = $50,000. The market is NOT aware of this. With this in mind, the management is going to repurchase shares worth $100,000.
a) What is the true value per share before the repurchase (true value
Related Documents: Problem For Week 10 Essay examples
This work ACC 202 Week 3 Assignment Problems consists of: Complete the following problems from Chapter 14 and submit to the instructor by the end of Day 7. These problems will be graded for accuracy. Problem 14-16 Problem 14-18 Problem 14-18 (continued) Problem 14-20 General Questions - General General Questions ACC 202 Week 1 Assignment Week One Exercises Week One Exercises. Complete the following exercises from Chapter 10 11 and submit them to…
5:40PM Room: BA 351 Instructor: Office: Office Hours: Email: He Wang 5th Floor Ph.D. Cubicles Tuesday & Thursday: 10:00AM- 11:30AM he.wang@grad.moore.sc.edu COURSE DESCRIPTION This course aims at acquainting students with international aspects of corporate finance. The ultimate objective of the course is to develop your ability to understand and analyze major problems of financial management in an international context. Specifically, we will see, throughout this course, how the business…
Waste Collection Exercises Problem 1: Description Determine the number of hauled container trucks required to serve a shopping center producing 113 yd3 of waste per day. Containers are picked up daily and are 9 yd3 each and are 70% full. Use the data on the following slide. Use this equation: Y = a + b + c(d) + e + f +g Data Total collection time (Y): 8 hours Off route time (f + g): 1.6 hours Time to drive to and from the garage (a + e): 30 min Time to drive to and from disposal facility…
especially after one week, I find it is impossible for me to reach my goals with my initial plans. Some parts of my plan are hard to finish efficiently even it sounds like a good idea. For this reason, I have tried to change some parts of my action plan, but it still made me feel these plans is useless and Inefficiency. Thus, I asked my teammates and roommate for the suggestion. The answer from them was unexpected; they told me my plan worked well. Then after one more week, I found my project did…
ACC 281 WEEK 5 FINAL PAPER To purchase this visit here: http://www.nerdypupil.com/product/acc-281-week-5-final-paper/ Contact us at: nerdypupil@gmail.com ACC 281 WEEK 5 FINAL PAPER Focus of the Final Paper Write an 8 to 10 page Case Analysis of the following article (which can be found in the Ashford Online ProQuest database): Souza, M. & McCarty, B. (2007). From bottom to top: How one provider retooled its collections [electronic version]. Healthcare Financial Management, 61(9), 67-73.…
Finance 801- Managerial Finance- Fall 2014 Instructor: Prof. Mark S. Johnson, Ph.D. Class Meets Section 002 TTH 10:20-11:40 G032 Hubbard Section 001 TTH 2:40-4:00 2400 Engineering Building Office: 324 Eppley Center Office phone: 432-6253 E-mail: johnsonm@bus.msu.edu Office Hours: MW 2:30-3:30 PM and by appointment Textbook: Corporate Finance, 10th Edition, by Stephen Ross, Randolph Westerfield, and Jeffrey Jaffe, 2008, McGraw-Hill/Irwin. ISBN 978-0-07-803477-0.…
Week One Written Assignment Robert Strenkowski Math 126 August 15, 2011 P. Martin Fenlon Week One Written Assignment For week one, we are assigned two problems from our readings. According to the assignment “complete exercises 35 and 37 in the “Real World Applications” section on page 230 of Mathematics in Our World.” My copy I obtained from the Electronic service VitalSource, which is provided by the Ashford library, is numbered differently, so I hope I got the correct problems. The page I found…
Problems Week 4 Betsy Whitfield ITT Tech Online MG518 – Operations and Process Management Professor Eloise Thomas August 24, 2013 * Chapter 9: Problems 2a, 2b, 5a, and 5b on page 346 * Chapter 10: Problems 2 and 5 on pages 381-382 * Chapter 11: Problems 2 and 3 on pages 407-408 * Chapter 12: Problems 2, 3a, 3b, 10a, 10b, 22a, and 22b on pages 440-443 Chapter 9 Problem 2 Prince Electronics, a manufacturer of consumer electronic goods…
TEXTS AND/OR MATERIALS UNIT WEBPAGE AND TECHNOLOGY USED AND REQUIRED 7 8 8 8 8 Policies and Procedures Student Support UniWISE provides: 10 10 10 Student Enquiry Service Equity Support IT Help 10 10 10 Graduate Capabilities Critical, Analytical and Integrative Thinking Learning Outcome Assessment Task 11 11 11 11 Problem Solving and Research Capability Learning Outcome Assessment Task 11 12 12 Creative and Innovative Learning Outcome Assessment Task 12…