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(8-1) Define each of the following terms: a. Proxy; proxy fight; takeover; preemptive right; classified stock; founders shares b. Closely held stock; publicly owned stock

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(8-1) Define each of the following terms: a. Proxy; proxy fight; takeover; preemptive right; classified stock; founders shares b. Closely held stock; publicly owned stock c. Intrinsic value (f); market price (P) Problems 307 d. Required rate of return, r; expected rate of return, f; actual, or realized, rate of return, 1, Simpkins Corporation is expanding rapidly, and it currently needs to retain all of its earnings; hence it does not pay any dividends. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly-at a rate of 50% per year-during Years 4 and 5. After Year 5, the company should grow at a constant rate of 8% per year. If the required return on the stock is 15%, what is the value of the stock today? Suppose a firm's common stock paid a dividend of $2 yesterday. You expect the dividend to grow at the rate of 5% per year for the next 3 years, and, if you buy the stock, you plan to hold it for 3 years and then sell it. a. Find the expected dividend for each of the next 3 years; that is, calculate D, D2, and D3. Note that D = $2. b. Given that the appropriate discount rate is 12% and that the first of these dividend payments will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PV of D, D2, and Dy, and then sum these PVs. c. You expect the price of the stock 3 years from now to be $34.73; that is, you expect P; to equal $34.73. Discounted at a 12% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $34.73. d. If you plan to buy the stock, hold it for 3 years, and then sell it for $34.73, what is the most you should pay for it? e. Use Equation 8-2 to calculate the present value of this stock. Assume that g = 5%, and it is constant f. Is the value of this stock dependent on how long you plan to hold it? In other words, if your planned holding period were 2 years or 5 years rather than 3 years, would this affect the value of the stock today, f

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