Depreciation tax-shield, portfolio beta,preference dividend
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A. For a profitable firm in the 35% marginal tax bracket with $100,000 of annual depreciation expense, what would the depreciation tax shield be?
B. What dividend is paid on preferred stock if investors require a 9% rate of return and the stock has a market value of 54% per share and a book value of $50.00 per share?
C. What is the Beta of a Three-Stock portfolio including 25% of Stock A with a Beta of .90, 40% stock B with a Beta of 1.05, and 35% Stock C with a Beta of 1.73?
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Solution Summary
This problem answers three problems on capital structure and portfolio management. The first problem calculates the depreciation tax shield. The second problem calculates the dividend payment required to justify the current market price of the preferred stock and interest rate. In the third problem calculates the portfolio beta if beta of individual stocks is given.
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a) Depreciation tax shield = Annual depreciation * marginal tax rate
=100000*35%=$35000
b) I feel the ...
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