Solutions Chapter 8

234 ANSWERS TO END-OF-CHAPTER QUESTIONS 8-1True. The value of a sh argon of tired is the PV of its pass judgment coming(prenominal) divid abates. If the cardinal investors expect the same future dividend stream, and they agree on the deports riskiness, because they should reach corresponding conclusions as to the stocks value. 8-2A perpetual stick is similar to a no-growth stock and to a share of preferred stock in the following shipway: 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 exact 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 maturation 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 listed firm is not really interested in maintaining his proportionable share of ownership and control. If he wanted to augment 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 terminate 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 handicap of an issue (by substantial underpricing), the preemptive right may comfortably be beneficial to the firm and to its stockholders. b.The preemptive right is distinctly important to the stockholders of closely held firms whose owners are interested in maintaining their coition 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 te rminal, or horizon, date is the date when th! e growth rate becomes constant. This occurs at the end of Year 2. b. 0...If you want to get a safe essay, ordering it on our website: OrderCustomPaper.com

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