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 judge coming(prenominal) divid abrogates. If the 2 investors expect the same future dividend stream, and they agree on the clove pinks riskiness, because they should reach corresponding conclusions as to the stocks value. 8-2A perpetual beat 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 serial publication of cash inflows--coupon payments from the perpetual bond, and dividends from some(prenominal) types of stock. 2.All three are assumed to return 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 change magnitude its payout ratio, then the dividend yield component will rise, but the expected long-run capital gains yield will decline. 8-5a.The average inve stor in a listed firm is not really interested in maintaining his proportionable share of ownership and control. If he wanted to increment 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 destroyed 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 harm of an issue (by substantial underpricing), the preemptive right may swell be beneficial to the firm and to its stockholders. b.The preemptive right is clearly important to the stockholde rs of closely held firms whose owners are in! terested in maintaining their relative 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, mark it on our website: OrderEssay.net

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