Why or why not? 2. Alternatively, you are considering purchasing Malcolm Co. preferred stock. Assume the preferred stock has a current market price of $42, a par value of $50 and a dividend of 10% of par. Would you be willing to buy the firm’s preferred stock? Why or why not? You have a required rate of return of 12.5% for investments of this type. 3. Now assume that Malcolm Co. has EPS of $1.89; 750,000 common stocks outstanding; and recently paid a dividend of $0.65 per share. Additionally, the
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ACG 2021 Take home Test Three Fall 2004-1 Instructions: • All work is due on Wed, December 8, 2004 at 1:30pm. No exceptions will be allowed. • All work must be individual work. Duplicates or cheating will not be tolerated. Students involved will receive a grade of ZERO on the examinations. • All work must be completed on the computer. Use Excel or Word. Hand written work will NOT be accepted. • Each problem must be a separate spreadsheet with your name and problem number on
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investors are evaluating General Electric’s stock for possible purchase. They agree on the expected value of D1 and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds stocks for 2 years and the other normally holds stocks for 10 years. On the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for General Electric’s stock. True or false? Explain. Problems
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Content Table of Content i 1 The Porsche Takeover 1 2 FPL Case 3 2.1 Expected Reaction of Stock Price 3 2.1.1 The Modigliani/Miller Theorem 3 2.1.2 The Tax Theory of Dividends 4 2.1.3 The Signaling Theory of Dividends 5 2.1.4 Agency Costs 5 2.1.5 Theory of Dividends Based on Tax Clienteles 6 2.2 Chart in the Light of Previous Theories 7 3 Elton and Gruber (1970): “Marginal Stock Holders tax Rates and the Clientele effect”, Review of Economics and Statistics 52, p. 68-74 8
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through an offering, and which are now traded on the open market. also called publicly held or publicly traded. opposite of private company. A company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or in the over the counter market. Although a small percentage of shares may be initially "floated" to the public, the act of becoming a public company allows the market to determine the value of the entire company through daily trading.
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Chapter 10 3. a) The new price for the stock shall be $45. b) Before the stock split, the payout was $6 per share and after the split, the dividend is $3 per share. 4. a) After the cash dividend is paid, the balance sheet will show cash of $26 Million and Retained earnings of $60 Million. b) A 5% dividend will cause cash to change to $21 Million ($2.5 per share x 2 million outstanding shares that will receive the dividends) and retained earnings will drop to $57 Million. c) A 2 for 1 reverse split
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15% (b) If the Company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock? Cost of equity from new stock (R) = [D1 / P0 (1-flotation Cost)] + g Cost of equity from new stock (R) = [$3 / $30 (1-0.10)] + 0.05 Cost of equity from new stock (R) = [$3 / $30 (0.9)] + 0.05 Cost of equity from new stock (R) = [$3 / $27] + 0.05 Cost of equity from new stock (R) = 0.1611 (or) 16.11% Cost of equity from new stock (R) = 16.11% In this case, the cost
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To: Ida Wong From: unbiased senior auditor Re: Potential accounting issues—Best Cars-R-Us Inc. (BCR) Overview Company Background and Constraints BCR is currently a private company; therefore GAAP is not a legal constraint. However, the company should comply with GAAP because BCR has intention to become public in the future—an initial public offering (IPO) is planned in the next fiscal year according to the case fact. As a private company, BCR can use ASPE to fairly present their financial
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1. Question : (TCO A) On July 1, 2010, an interest payment date, $60,000 of Parks Co. bonds were converted into 1,200 shares of Parks Co. common stock, each having a par value of $45 and a market value of $54. There is $2,400 unamortized discount on the bonds. Using the book value method, Parks would record Student Answer: no change in paid-in capital in excess of par. a $3,600 increase in paid-in capital in excess of par. a $7,200 increase in paid-in capital in excess of
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consider a risk premium of 4 percent and a risk-free rate of 1.83 percent. Weighted Average Cost of Capital is the calculation of an organization’s cost of capital in relation to its weight. These sources of capital include preference shares, common stock, and debt whether short term or long term. It is used as a discounting rate to calculate the profitability of a project using a technique like Net Present Value approach. To calculate the Weighted Average Cost of Capital, we use the formula below:
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