Question
Each of the six firms in the table below is expected to pay the listed dividend payment every year in perpetuity. Firm Dividend ($ million)
Each of the six firms in the table below is expected to pay the listed dividend payment every year in perpetuity.
Firm | Dividend ($ million) | Cost of Capital (%/year) |
S1 | 9.8 | 8.4 |
S2 | 9.8 | 12.9 |
S3 | 9.8 | 14.8 |
B1 | 98.0 | 8.4 |
B2 | 98.0 | 12.9 |
B3 | 98.0 | 14.8 |
Using the cost of capital in the table: Firm S1 market value is $__________ million. (Round to one decimal place.) Firm S2 market value is $__________ million. (Round to one decimal place.)
Firm S3 market value is $__________ million. (Round to one decimal place.)
Firm B1 market value is $__________ million. (Round to one decimal place.)
Firm B2 market value is $__________ million. (Round to one decimal place.)
Firm B3 market value is $__________ million. (Round to one decimal place.)
Rank the three S firms by their market values. For a self-financing portfolio that went long on the firm with the largest market value and shorted the firm with the lowest market value, the expected return of a self-financing portfolio is __________%. (Round to one decimal place.) Repeat with the B firms. The expected return of a self-financing portfolio is __________%. (Round to one decimal place.)
Rank all six firms by their market values. For a self-financing portfolio that went long on the firm with the largest market value and shorted the firm with the lowest market value, the expected return of a self-financing portfolio is __________%. (Round to one decimal place.)
Repeat part (c) but rank the firms by the dividend yield instead of the market value. The expected return of a self-financing portfolio is __________%. (Round to one decimal place.)
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