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3. You are asked to invest $8,000 in a friend's business with the promise that your friend will repay $9670 in two year. You find
3. You are asked to invest $8,000 in a friend's business with the promise that your friend will repay $9670 in two year. You find that the best alternative to this investment, with similar risk, is one that will pay you $10250 in two year. U.S. Treasuries of similar term offer a rate of return of 6.5%. What is your opportunity cost of capital in this case? A) 9.9% (B) 13.2% C) 6.5% D) 8.7% 4. XYZ Enterprises just announced that it plans to cut its dividend from $5.00 to $3.50 per share and use the extra funds to expand its operations. Prior to this announcement, XYZ's dividends were expected to grow indefinitely at 3% per year and XYZ's stock was trading at $58.82 per share. With the new expansion, XYZ's dividends are expected to grow at 6% per year P1 indefinitely. Assuming that XYZ's risk is unchanged by the expansion, the value of a share of XYZ after the announcement is closest to A) $63.63 B) $75.50 C) $49.32 (D) $54.25 3. You are asked to invest $8,000 in a friend's business with the promise that your friend will repay $9670 in two year. You find that the best alternative to this investment, with similar risk, is one that will pay you $10250 in two year. U.S. Treasuries of similar term offer a rate of return of 6.5%. What is your opportunity cost of capital in this case? A) 9.9% (B) 13.2% C) 6.5% D) 8.7% 4. XYZ Enterprises just announced that it plans to cut its dividend from $5.00 to $3.50 per share and use the extra funds to expand its operations. Prior to this announcement, XYZ's dividends were expected to grow indefinitely at 3% per year and XYZ's stock was trading at $58.82 per share. With the new expansion, XYZ's dividends are expected to grow at 6% per year P1 indefinitely. Assuming that XYZ's risk is unchanged by the expansion, the value of a share of XYZ after the announcement is closest to A) $63.63 B) $75.50 C) $49.32 (D) $54.25
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