HomeworkLib
Question

1. LLP Utility paid a dividend this year of $1.00/share. they have increased their dividend payout...

1. LLP Utility paid a dividend this year of $1.00/share. they have increased their dividend payout 5% every year for the past 50 years and expect this to continue indefinitely. the stock currently sells for $20. other info: LLP beta = .9; treasury return =3.5%; market premium = 4%.

a) using the CAPM model, what is the required return for the stock? carry answer out to one decimal place.

b) using the dividend growth model, what is the required return for the stock? carry answer out to one decimal place.

2. Alpha corp. is selling 30 year, 10% coupon bonds, each with a par value of $1,000. because its coupon rate is higher than the market, Alpha can sell its bonds for $1,200. Bonds pay annual coupon interest. Alpha must pay a $30 per bond flotation cost to issue its bonds. Alpha’s tax rate is 40%. what is alpha’s after tax cost of this debt?
business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

If you have any doubt, please comment in comment section below

0 0
Add a comment
Know the answer?
Add Answer to:
1. LLP Utility paid a dividend this year of $1.00/share. they have increased their dividend payout...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 9) A company that you are interested in has an ROE of 20%. Its dividend payout...

    9) A company that you are interested in has an ROE of 20%. Its dividend payout ratio is 60%. The last dividend, that was just paid, was $2.00 and the dividends are expected to grow at the same current rate indefinitely. Company's stock has a beta of 1.8, risk-free rate is 5%, and the market risk premium is 10%. a) Calculate the expected growth rate of dividends using the ROE and the retention ratio. b) Calculate investors' required rate of...

  • Please help me solve these problem step by step 6. A company just paid a dividend...

    Please help me solve these problem step by step 6. A company just paid a dividend of S6.55 on its common stock at the end of last year Dividends next year are expected to be $6.67 and $6.73 the year after that. You believe you can set the stock then for $14.96. If you required rate of return in the stock is 19%. How much are you willing to pay for the stock today? 7. A company has common stock...

  • The dividend yield on Alpha’s stock is 4.8%. The company just paid a $2.10 dividend, and...

    The dividend yield on Alpha’s stock is 4.8%. The company just paid a $2.10 dividend, and investors believe that the dividend next year will be $2.205. This dividend growth rate is expected to remain unchanged into perpetuity. What is the implied required return on Alpha’s stock? Enter your answer in decimal form out to four decimals. For example, you would enter r=10.15% as 0.1015.

  • Problem 1: A corporation will pay a $1.00 dividend (D1) in the next 12 months on a share of common stock. The required r...

    Problem 1: A corporation will pay a $1.00 dividend (D1) in the next 12 months on a share of common stock. The required rate of return is 5% and the constant growth rate is 4%. Compute the theoretical stock price. Problem 2: A corporation expects to pay dividends (D1) of $1.75 per share at the end of the current year and the current price of its common stock is $30 per share. The expected growth rate is 3.5% and flotation...

  • ABC Company just paid out a dividend of $2 and expects this dividend to grow indefinitely...

    ABC Company just paid out a dividend of $2 and expects this dividend to grow indefinitely at a rate of g% per year. ABC has 100,000 shares outstanding with a current market price of $26 per share. ABC’s beta is 1.5, the return on the market is 9%, and the risk-free rate is 3%. Calculate the growth rate “g” so that the market is in equilibrium  (i.e., the CAPM-based return on ABC shares equals the Dividend-Growth-Model based return).

  • 1) IBM has outstanding bonds with 8% annual coupon rate, that pays interest semiannually. Par value...

    1) IBM has outstanding bonds with 8% annual coupon rate, that pays interest semiannually. Par value of these bonds are $1,000 and they were issued 7 years ago, at the time, with a 30-year maturity (remember that N is the time-to-maturity). a) If similar bonds have 9% return, how much would you be willing to pay for this bond? b) If the bond is currently selling for $950, what would your annual Yield-to-Maturity be if you were to buy it...

  • Company XYZ will pay in exactly one year 54 in dividends per share to its common...

    Company XYZ will pay in exactly one year 54 in dividends per share to its common stock shareholders. In exactly one year it will pay S2 in dividends per share to holders of its preferred stock. The flotation costs on a per share basis for common stock are 57 and for preferred stock are $2. Common stock dividends are expected to grow 5% each year-preferred stock dividends will not change. The company can issue $1,000-par-value, 12% coupon, ten-year bonds that...

  • Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9.80, but management expects to reduce the payout by 4 percent per year indefinitely.

    S08-20 Negative Growth [LO1] Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9.80, but management expects to reduce the payout by 4 percent per year indefinitely. If you require a return of 9.5 percent on this stock, what will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price = _______ 

  • Question 10 1 pts What is the price of a stock who just paid a dividend...

    Question 10 1 pts What is the price of a stock who just paid a dividend of $2.00 per share assuming the following: • the growth rate in the dividend is expected to be 20% per year for 3 years • the normal growth rate in the dividend (i.e. after 3 years are up) is 5% per year and will go on indefinitely • the appropriate discount rate is 9% Question 2 1 pts The discounted cash flow model for...

  • The Sharpe Co. just paid a dividend of $1.95 per share of stock. Its target payout...

    The Sharpe Co. just paid a dividend of $1.95 per share of stock. Its target payout ratio is 50 percent. The company expects to have an earnings per share of $4.90 one year from now. a. If the adjustment rate is .3 as defined in the Lintner model, what is the dividend one year from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Dividend $ b. If the adjustment rate is .6...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT