Clifford S. Asness From the 19th century through the mid-20th century‚ the dividend yield (dividends/price) and earnings yield (earnings/price) on stocks generally exceeded the yield on long-term U.S. government bonds‚ usually by a substantial margin. Since the mid-20th century‚ however‚ the situation has radically changed. In addressing this situation‚ I argue that the difference between stock yields and bond yields is driven by the long-run difference in volatility between stocks and bonds. This
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common stock of DL Smith‚ Inc. What is the return that these individuals require on this investment called? A. dividend yield B. cost of equity C. capital gains yield D. cost of capital E. income return 2. Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the: A. compound rate. B. current yield. C. cost of debt. D. capital gains yield. E. cost of capital. 3. The average of a firm’s cost of equity and aftertax cost of debt that is weighted based on the
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Prediction or forecasting is a common phenomenon for which all human beings are always eager to know. The pre-knowledge about unknown and uncertain future prepare them to cope up in an efficient way. Since the dawn of civilization‚ this desire has been satisfied by priests‚ astrologers‚ fortune tellers‚ etc. In the present scenario‚ the necessity of predicting future is fulfilled in ample ways. There are several forecasting methods available from simplest to some of the most complicated; from judgmental
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80 and the growth rate is 6.0 percent. What is the firm’s cost of equity? RE = [$1.30 × (1 + 0.060)] / $36.80 + 0.060 = 0.097446 = 9.74 percent (3) - The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.30 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1‚000. This bond is currently selling for 93 percent of its face value. What is the company’s pre-tax cost of debt? (3) -Jensen’s Travel Agency has 9 percent preferred stock outstanding that
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nothing but a caution light‚ people go through there going faster than they should. This in return has caused twenty-nine wrecks within the past year. People may think that that is not a lot of wrecks for a year‚ but take into a count that fifty-five percent of these wrecks were fatal. To make this intersection a safer place to travel for the community I propose that we do one of three things. My first proposal is that‚ as a community‚ we petition the Louisiana State Department of Transportation to put
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debt in capital structure = 1209*40‚000‚000/1000 = 48‚360‚000 Market value of Preferred stock (closing price) =105*10‚000‚000/100 = 10‚500‚000 Market value of common stock =30.50*6.2261 million = 189‚896‚000 Item Amount Weight Percent Long term debt 48360 / 248760 19.4% Preferred stock 10500 / 248760 4.2% Common Equity 189900 / 248760 76.3% d. Are book value or market value weights better for calculating the firm’s weighted average cost of capital? Market value weights are
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required returns. 3. The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt. 4. The cost of issuing preferred stock by a corporation must be adjusted to an after-tax figure because of the 70 percent dividend exclusion provision for corporations holding other corporations’ preferred stock. 5. The firm’s cost of external equity capital is the same as the required rate of return on the firm’s outstanding common stock. 6. The cost of equity
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growth rate. And the required return could be decomposed into two parts: the expected dividend plus the expected future growth in dividends. That is the stock price equals dividend divided by the indicated dividend yield. And Wal-Mart has an indicated dividend yield of 1.2 percent. [2] Based on this model‚ the PV of stock price of 2006 should be dividend $0.64/1.2%=$53.33‚ higher than the recent closing price of $49.47. It reaches a conclusion that we’d better buy the Wal-Mart stocks.
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will remain the same. • Project B has an up-front cost of $100‚000‚ and it is expected to produce cash inflows of $41‚000 per year at the end of each of the next four years. Project B cannot be repeated. Both projects have a cost of capital of 10 percent. Hiphop wants to select the project that provides the most value over the next four years. What is the net present value (NPV) of the project that creates the most value for the company? a) b) c) d) e) $34‚425 $30‚283 $29‚964 $29‚240 $24‚537
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Specific: The computer-controlled circuit tester checks out our memory boards ten times faster than technicians could‚ but it passed twenty percent more faulty regulators last month. General: Pesticides increase crop yields‚ but often cause damage to the environment and sickness in people. More Specific: Since 1975‚ when malathion was introduced in India‚ 65 percent more corn was produced‚ but birth defects increased fourfold. General: With reference to your request for information about our new
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