Solutions Chapter 8

234 ANSWERS TO END-OF-CHAPTER QUESTIONS 8-1True. The value of a sh be of tired is the PV of its anticipate coming(prenominal) divid ratiocinations. If the two investors expect the same future dividend stream, and they agree on the contains riskiness, because they should reach corresponding conclusions as to the stocks value. 8-2A perpetual marry is similar to a no-growth stock and to a share of preferred stock in the following slipway: 1.All three come up their values from a series of cash inflows--coupon payments from the perpetual bond, and dividends from some(prenominal) types of stock. 2.All three are assumed to pick out enigmatical lives with no maturity value (M) for the perpetual bond and no capital gains yield for the stocks. 8-3Yes. If a company decides to attach its payout ratio, then the dividend yield component will rise, but the expected long-run capital gains yield will decline. 8-5a.The average investor in a l isted firm is not really interested in maintaining his proportionable share of ownership and control. If he wanted to extend his ownership, he could simply buy more stock on the nearly-defined market. Consequently, most investors are not concerned with whether new shares are sold directly (at about market prices) or sunk rights offerings.

However, if a rights offering is being used to effect a stock split, or if it is being used to reduce the underwriting terms of an issue (by substantial underpricing), the preemptive right may hale be beneficial to the firm and to its stockholders. b.The p reemptive right is intelligibly important ! to the stockholders of closely held firms whose owners are interested in maintaining their sex act control positions. SOLUTIONS TO END-OF-CHAPTER PROBLEMS 8-2D1 = $0.50; g = 7%; ks = 15%; [pic] = ? [pic] 8-4Dp = $5.00; Vp = $60; kp = ? kp = [pic] = [pic] = 8.33%. 8-5a.The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. b. 0...If you want to get a safe essay, bless it on our website: OrderCustomPaper.com

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