Answer:
required return on the company's stock = 11%
Value of each share =$88.51
Explanation:
The constant growth model states that . If ke is made subject of formular,
.
This implies that ke= dividend yield plus growth rate = 6%+5%=11%. Therefore the required return on the company's stock = 11%
Values of each share = .
where
and P3=
Value of each share = = 88.51
Answer:
Bond interest expense = $2,290
so correct option is b. $2,290
Explanation:
given data
Bond issued = $50,000
Interest rate = 10%
interest semi-annually = 5%
time period = 5 year
to find out
amount of bond interest expense
solution
we get first Cash interest payment that is here
Cash interest payment = $50,000 × 5%
Cash interest payment = $2,500 ....................1
and Bond premium will be
Bond premium = $52,100 – $50,000
Bond premium = $2,100 .......................2
we know interest paid semi annually so time period will be = 10
so Amortization of bond premium will be here as
Amortization of bond premium =
Amortization of bond premium = $210 .................3
so Bond interest expense will be calculate as
Bond interest expense = Cash interest payment - Amortization of bond premium .......................4
put here value
Bond interest expense = $2,500 - $210
Bond interest expense = $2,290
so correct option is b. $2,290