a4 - ACTSC 372 – Assignment 4 – due on 1[3 points You...

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Unformatted text preview: ACTSC 372 – Assignment 4 – due on March 30, 2007 1. [3 points] You own 100 shares of Remko Inc., which will pay a dividend of $2.50 per share at the end of each year for the next two years. Three years from now, Remko Inc. will close and the liquidating value returned to the shareholders will be $16.5 per share. The required return on Remko’s stock is 13%. (a) What is the current price of Remko’s stock? (b) If you prefer to receive an equal amount of money every year in each of the next three years, how can you accomplish this (only using transactions on Remko’s stock)? 2. [3 points] Jensen Inc. currently has a debt-to-equity ratio of 30%, and the required return on the firm’s levered equity is 17%. The applicable corporate tax rate is 35%. Jensen Inc. is considering a project that requires an initial investment of 14 million, and that will generate after-tax cash flows of 3, 7 and 8 millions at the end of year 1, 2, and 3, respectively. Jensen is planning to issue 4.5 million in3, 7 and 8 millions at the end of year 1, 2, and 3, respectively....
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This note was uploaded on 09/18/2011 for the course ACTSC 372 taught by Professor Maryhardy during the Winter '09 term at Waterloo.

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