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Question
Health and Wealth Company is financed entirely by common stock that is priced to offer a 15% expected return. If the company repurchases 25% of the common stock and substitutes an equal value of debt yielding 6%, what is the expected return on the common stock after refinancing? (Ignore taxes.)
A. 18%
B. 21%
C. 15%
D. None of the above
Answer
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Related questions
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Suppose VS's stock price is currently $20. In the next six months it will either fall to $10 or rise to $30. What is the current value of a put option with an exercise price of $15? The six-month risk-free interest rate is 5% (periodic rate).
A. $5.00
B. $2.14
C. $0.86
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Q:
Suppose Ralph's stock price is currently $50. In the next six months it will either fall to $30 or rise to $80. What is the option delta of a call option with an exercise price of $50?
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B. Fall exactly by the amount of the dividend
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One key assumption of the Miller and Modigliani (MM) dividend irrelevance argument is that:
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B. There are no capital gains taxes
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Generally, investors view the announcement of open-market repurchase of stocks as:
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