Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 9, Problem 2P
Anle corporation has a current price of $20, is expected to pay a dividend of $1 in one year, and its expected price right after paying that dividend is $22.
- a. What is Anle’s expected dividend yield?
- b. What is Anle’s expected
capital gain rate? - c. What is Anle’s equity cost of capital?
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Students have asked these similar questions
A financial analyst wants to compute a company's weighted average cost of capital (WACC) using the dividend discount model. The company has a before-tax cost of new debt of 9%, tax rate of 37.5%, target debt-to-equity ratio of 0.76, current stock price of $74, estimated dividend growth rate of 7% and will pay a dividend of $3.2 next year. What is the company’s WACC
A. 8 percent.
B. 9 percent.
C. 10 percent.
D. 11 percent.
You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns:
a. What was XYZ's average historical return?
b. Compute the market's and XYZ's excess returns for each year. Estimate XYZ's beta.
c. Estimate XYZ's historical alpha.
d. Suppose the current risk-free rate is 3%, and you expect the market's return to be 9%. Use the CAPM to estimate an expected return for XYZ Corp.'s stock.
e. Would you base your estimate of XYZ's equity cost of capital on your answer in part (a) or in part (d)?
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Year
2007
2008
Risk-free Return
2%
1%
Print
Market Return
5%
- 39%
Done
XYZ Return
11%
- 46%
X
Mackenzie Company has a price of $31 and will issue a dividend of $2.00 next year. It has a beta of 1.5, the risk-free rate is 5.4%, and the market risk premium is estimated to be 4.8%.
a. Estimate the equity cost of capital for Mackenzie.
b. Under the CDGM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)?
Chapter 9 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 9.1 - How do you calculate the total return of a stock?Ch. 9.1 - Prob. 2CCCh. 9.2 - In what three ways can a firm increase its future...Ch. 9.2 - Under what circumstances can a firm increase its...Ch. 9.3 - How does the growth rate used in the total payout...Ch. 9.3 - Prob. 2CCCh. 9.3 - Prob. 3CCCh. 9.4 - Prob. 1CCCh. 9.4 - What implicit assumptions are made when valuing a...Ch. 9.5 - State the efficient market hypothesis.
Ch. 9.5 - Prob. 2CCCh. 9 - Assume Evco, Inc., has a current price of 50 and...Ch. 9 - Anle corporation has a current price of 20, is...Ch. 9 - Suppose Acap Corporation will pay a dividend of...Ch. 9 - Prob. 4PCh. 9 - NoGrowth Corporation currently pays a dividend of...Ch. 9 - Summit Systems will pay a dividend of 1.50 this...Ch. 9 - Prob. 7PCh. 9 - Canadian-based mining company EI Dorado Gold (EGO)...Ch. 9 - In 2006 and 2007, Kenneth Cole Productions (KCP)...Ch. 9 - DFB, Inc., expects earnings at the end of this...Ch. 9 - Cooperton Mining just announced it will cut its...Ch. 9 - Procter and Gamble (PG) paid an annual dividend of...Ch. 9 - Colgate-Palmolive Company has just paid an annual...Ch. 9 - Prob. 14PCh. 9 - Halliford Corporation expects to have earnings...Ch. 9 - Prob. 16PCh. 9 - Maynard Steel plans to pay a dividend of 3 this...Ch. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Suppose that In January 2006, Kenneth Cole...Ch. 9 - In addition to footwear, Kenneth Cole Productions...Ch. 9 - You read in the paper that Summit Systems from...Ch. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33P
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