Answer: Yes, the distribution between the dividend yield and the capital gains yield would influence the firm’s decision to pay more dividends rather than to retain and reinvest more of its earnings.
Explanation:
Yes, If a company decides to increase its dividend payout ratio, the dividend yield component will rise, but the expected long-term capital gains yield will decline as there is less to reinvest in the company. Also, if the company doesn't pay out dividends, there's more to reinvest in the company. Stable and older companies that are not on a growth objective rely on investors that prefer dividends more than share price appreciation. On the other hand, emerging companies, are inclined to share price appreciation to attract investors. Investors understand that all retained earnings are going towards marketing and growth objectives.
Answer: The coupon rate is 13%
Explanation:
We would first calculate the Coupon Payment and then later using the coupon payment we would compute the Coupon rate.
PV = 
+ A [![[\frac{1-\frac{1}{(1+r)^{N} } }{r} ]](https://tex.z-dn.net/?f=%5B%5Cfrac%7B1-%5Cfrac%7B1%7D%7B%281%2Br%29%5E%7BN%7D%20%7D%20%7D%7Br%7D%20%5D)
]
Where,
FV = $1,000
PV = $1,291.31
r = 8%
N = 8 Years
A = Coupon Payment
1291.31 = 
+ A ![[\frac{1-\frac{1}{(1+0.08)^{8} } }{0.08} ]](https://tex.z-dn.net/?f=%5B%5Cfrac%7B1-%5Cfrac%7B1%7D%7B%281%2B0.08%29%5E%7B8%7D%20%7D%20%7D%7B0.08%7D%20%5D)
Solve for A
A = 130.69
The coupon payment is $130
Coupon rate = (Coupon payment / Face value) x 100
= 
x 100
= 13 %
Answer:
None of the options are correct as the price today will be $26.786
Explanation:
The price of a stock whose dividends are expected to grow at a constant rate forever can be calculated using the constant growth model of the dividend discount model approach (DDM). The DDM bases the value of a stock on the present value of the future expected dividends from the stock.
The formula for price under constant growth model is,
P0 = D1 / (r - g)
Where,
- D1 is the dividend expected for the next period
- r is the required rate of return or cost of equity
- g is the growth rate in dividends
However, as the constant growth rate in dividends is to be applied from Year 2 onwards, we will use the D2 to calculate the price at Year 1 and we will then discount this further for one year to calculate the price today.
P1 or Year1 price = 2 * (1+0.05) / (0.12 - 0.05)
P1 or Year 1 price = $30
The price of the stock today or P0 will be,
P0 = 30 / (1+0.12)
P0 = $26.786
Answer:
a)
Pre-tax Cost Of Debt = 7.64%
b)
Tax Rate = 40%
Post Tax cost of debt = 7.33% * (1 - 40%) = 4.58%
So Post Tax cost of Debt = 4.58%
Explanation:
Bond Par Value = 12,900,000
Bond Market Price 93% of face value = 11,997,000
Years To maturity = 5.00
Annual Interest 5.9% = 761,100
Formula = [Annual Interest + (Par Value-Market Value) / Years to Maturity] / [(Par value+Market Price*2)/3]
Year To Maturity = [761100 + (12900000 - 11997000) / 5] / (12900000 + 2*11997000) / 3
Year to maturity = 7.33%
