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Corporate Finance
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HarborTech Industries has 124 million shares outstanding, and analysts project that the firm will earn $550 million at the end of this year (12 months from today). The CFO has recently stated that the company will distribute 40% of its earnings as dividends and allocate an additional 20% toward share repurchases. If HarborTech’s equity cost of capital is 16% and its earnings are expected to grow at 4% annually, then the estimated value of one share of HarborTech stock is closest to:
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You purchased shares of Redwood Foods four years ago. The stock paid a dividend of 5.60 at the end of the first year, followed by dividends of 5.58 at the end of years 2 and 3, and then a dividend of 6.08 at the end of year 4. You sold the stock at the end of year 4 for 84.53. If your annual return on this investment was 16.7%, what was the stock price at the time of purchase?
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Today, Monarch Enterprises paid a dividend of $2.81 per share. This indicates that the firm’s dividend has tripled over the past 30 years, corresponding to an approximate annual growth rate of 3.730%. Both the CFO and leading analysts expect dividends to continue growing at this same rate indefinitely. If shareholders require a 17.42% annual return, the current stock price of Monarch is closest to:
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The Horizon Manufacturing Corporation has a bond outstanding with a face value of $1,000 that will mature in 18 years. The bond certificate specifies an annual coupon rate of 8.5%, and the bond will be repaid at face value at maturity. If the appropriate YTM for Horizon’s bond is 9.5%, then the bond will sell at:
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You are setting up a college savings plan for your six-year-old son. Your goal is to have $129,000 saved by the time he begins college, which you expect will be in 12 years. The savings account you intend to use offers a fixed annual interest rate of 3.20%. To meet your goal, how much money should you invest today so that the account balance will reach $129,000 when he starts college? The answer is closest to:
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Which of the following is true about the time value of money?
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You have recently received a legal settlement that offers two payout options. You can choose to receive $45,0000 immediately, or $70,000 seven years from now. Which option would be more valuable if the annual interest rate is 4%?
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You plan to deposit $760 at the end of each year into an education savings account that earns an annual interest rate of 7.32%. The first deposit will be made one year from today, and you intend to continue these deposits for 14 years. At the end of the fourteenth year, you plan to use the accumulated amount to support your younger cousin’s education. What is the present value of your planned contributions? The answer is closest to:
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A renewable energy company offers you a lifetime contract to receive annual payments for licensing your patented technology. The first payment of $1,400 will be made one year from today, and each subsequent payment will increase by 5.4% per year indefinitely. If the discount rate is 8.6% per year, what is the value of this payment stream immediately before the first payment is received? The answer is closest to:
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Which of the following is not a type of agency cost?
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