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2 years ago

Vera Paper's stock has a beta of 1.40, and its required return is 12.00%. Dell Dairy's stock has a beta of 0.80. If the

Business

1 answer:

jeka57 [31]2 years ago

3 0

The required rate of return on the stock of Dell company is come out to be 8.89%.

<h3>What is a stock?</h3>

Stock represents the number of shares being owned by an investor in the company on which it gets the dividends.

Given values for step 1:

The required rate of return: 12%

Beta factor: 1.40

Risk-free rate: 4.75%

<u>Step-1</u> Computation of market risk premium:

$\rm\ Market \rm\ risk \rm\ premium=\frac{\rm\ Required \rm\ rate \rm\ of \rm\ return-\rm\ Risk \rm\ free \rm\ rate}{\rm\ Beta \rm\ factor} \\\rm\ Market \rm\ risk \rm\ premium=\frac{\$12\%-4.75\%}{1.40} \\\rm\ Market \rm\ risk \rm\ premium=5.18\%$

Given values for step 2:

Market risk premium: 5.18%

Beta factor: 0.80

Risk-free rate: 4.75%

<u>Step-2</u> Computation of required rate of return:

$\rm\ Required \rm\ rate \rm\ of \rm\ return = \rm\ Risk \rm\ free \rm\ rate + ( \rm\ Market \rm\ risk \rm\ premium \times\ Beta factor) \\ \rm\ Required \rm\ rate \rm\ of \rm\ return=4.75\% + ( 5.18\% \times\ 0.80)\\ \rm\ Required \rm\ rate \rm\ of \rm\ return=8.89\%$

Therefore, the return of 8.89% comes out to be the required rate of return for the stock of Dell Company.

Learn more about the required rate of return in the related link:

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d. $74,749.60 ( depreciation allowance @ 8.92% )

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Under Modified Accelerated Cost Recovery System the Office furniture and fixtures, agricultural machinery and equipment, any other property not associated with another class is classified as 7-years property.

These assets are depreciated as follows:

Year Percentage Depreciate

1 14.29%

2 24.49%

3 17.49%

4 12.49%

5 8.93%

6 8.92%

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In the Sixth year depreciation will be charged by 8.92%.

Asset Value = $838,000

Depreciation Allowance in 6th year = $838,000 x 8.92%

Depreciation Allowance in 6th year = $74749.60

*Option for the given Mcqs are missing and written as follows:

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3 years ago

Which of the following statements best represents the reason for the accounting equation?

NikAS [45]

Answer:

c. The total of everything owned by a business must always equal the total of what the business owes to creditors and owners.

Explanation:

In every balance sheet, the accounting equation has used that means

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The statement of stockholder's equity comprises common stock and retained earnings. And, the balance sheet comprises of the assets and liabilities.

The total assets comprises of current assets, fixed assets and the intangible assets

The current assets includes cash, stock, account receivable, etc

Fixed assets include plant & machinery, land, equipment, furniture & fittings, etc.

And, the intangible assets include patents, copyrights, goodwill, etc.

And, the total liabilities include current liabilities and the long term liabilities

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Hence, the most appropriate option is c.

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3 years ago

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3.5 customers

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= (210 customers) ÷ (270 customers - 210 customers)

= (210 customers) ÷ (60 customer)

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3 years ago

Riverbed Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2020: Cash $7,280, Land $49

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Answer:

Explanation:

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3 years ago

A University is offering a charitable gift program. A former student who is now 50 years old is consider the following offer: Th

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Answer:

The value of this deferred annuity today on his 50th birthday is <u>$2,621.27</u>.

Explanation:

Since the student's desired return of 6% will also start to be paid starting on his 65th birthday, the value of this deferred annuity today on his 50th birthday can be calculated by first calculating the value of the investment on the 65th birthday.

We therefore proceed with the following two steps:

Step 1: Calculation of the value of the investment on the 65th birthday

The value of the investment on the 65th birthday can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PV = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)

Where;

PV at 65 = Present value of the annuity at 65th birthday =?

P = Annuity payment = Invested amount * Student's desired return = $8,900 * 6% = $534

r = Student's desired return rate = 6%, or 0.06

n = number of more years anticipate to live after 65th birthday = 21

Substitute the values into equation (1) to have:

PV at 65 = $534 * ((1 - (1 / (1 + 0.06))^21) / 0.06)

PV at 65 = $534 * 11.764076621288

PV at 65 = $6,282.02

Therefore, the value of the investment on the 65th birthday is $6,282.02.

Step 2: Calculation of the value of this deferred annuity today on his 50th birthday

The value of this deferred annuity today on his 50th birthday can therefore be calculated using the simple present value for as follows:

PV at 50 = PV at 65 / (1 + r)^N …………………………….. (2)

Where;

PV at 50 = the value of this deferred annuity today on his 50th birthday = ?

PV at 65 = Present value of the annuity at 65th birthday = $6,282.02

r = Student's desired return rate = 6%, or 0.06

N = number of years from 50th birthday to 65th birthday = 65 - 50 = 15

Substitute the values into equation (2) to have:

PV at 50 = $6,282.02 / (1 + 0.06)^15

PV at 50 = $6,282.02 / 2.39655819309969

PV at 50 = $2,621.27

Therefore, the value of this deferred annuity today on his 50th birthday is <u>$2,621.27</u>.

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3 years ago