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Author Question: Frank Castanza owns 100 shares in a weapons company called Guns-R-Us. Frank brags about its steady, ... (Read 76 times)

rmenurse

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on: Apr 25, 2021
Frank Castanza owns 100 shares in a weapons company called Guns-R-Us. Frank brags about its steady, annual dividend of $1.25 per share. You are jealous of the dividend but philosophically opposed to weapons companies, so you can't buy the stock. Instead, you have identified the Paper Street Soap Factory (PSSF) which is developing a new biodegradable bath soap. The company plans to begin paying an annual dividend of $1.25 starting in two years. Stockholders in both companies require a return of 7.5%. A stock price and dividend forecast for the two companies is provided in the table. (Assume that dividends are paid in perpetuity.) Your plan is to buy shares in PSSF today, sell some at Year 1 and hold the remainder in perpetuity. How many shares do you have to buy today in order to earn the same annual income as Frank?

​Guns-R-Us​​PSSF​
YearPriceDividend​PriceDividend
016.66667​​15.50388​
116.666671.25​16.666670
216.666671.25​16.666671.25
316.666671.25​16.666671.25

◦ 93
◦ 100
◦ 107.5
◦ 116.67
◦ 125
Corporate Finance Online ¦ Eakins, McNally ¦ 2nd Edition
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Marked as best answer by rmenurse on Apr 25, 2021

matt95

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Reply #1 on: Apr 25, 2021
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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rmenurse

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Reply 2 on: Apr 25, 2021
Thanks for the timely response, appreciate it

Mochi

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Reply 3 on: Yesterday
Excellent

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