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 suppresss. If the deuce investors expect the same future dividend stream, and they agree on the packs riskiness, because they should reach corresponding conclusions as to the stocks value. 8-2A perpetual tie is similar to a no-growth stock and to a share of preferred stock in the following ways: 1.All three come up their values from a serial of cash inflows--coupon payments from the perpetual bond, and dividends from some(prenominal) types of stock. 2.All three are assumed to keep 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 improver 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 fir m is not really interested in maintaining his proportionable share of ownership and control. If he wanted to attach 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 unblemished 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 cost of an issue (by substantial underpricing), the preemptive right may head be beneficial to the firm and to its stockholders. b.The pree mptive right is intelligibly important to ! the stockholders of closely held firms whose owners are interested in maintaining their congress 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, regulate it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper