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Mamont248 [21]
3 years ago
14

Suppose Stark Ltd. just issued a dividend of $2.57 per share on its common stock. The company paid dividends of $2.20, $2.31, $2

.38, and $2.49 per share in the last four years. If the stock currently sells for $65, what is your best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
crimeas [40]3 years ago
5 0

Answer:

Answer:

Growth rate (g) = n-1√(<u>Latest dividend)</u>     - 1

                                      Current  dividend

                          = 4-1√($2.49/2.20)   -1  

                         = 3√(1.1318)  -1  

                        = 1.04  -  1

                        = 0.04 = 4%

Ke = Do<u>(1 + g) </u>  +  g

               Po

Ke =  $2.57(<u>1  +  0.04</u>)  + 0.04

                         65

Ke = 0.04 + 0.04

Ke = 0.08 = 8%

Explanation:

In this  case, we need to calculate the growth rate using the above formula. Then, the cost of equity will be  calculated. Cost of equity is a function of current dividend paid subject to growth rate divided by current market price.

Explanation:

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Prepare the general journal entries for Culver Company for____________.(a) The 2020 adjusting entry.(b) The sale of the Gordon s
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Answer:

a) Debit fair value loss $7,900 Credit Investment $7,900

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d) Debit Fair value loss $10,400 Credit Investment $10,400

Explanation:

c) the purchase of stock include fees and the fees are included in the cost of the shares and increase the cost of the asset hence they are capitalised on the cost. The fees are an expense directly associated with the purchase therefore are attributable costs.

the completed question

E17-15

(Equity InvestmentsTrading) Culver company has the following securities in its trading port- folio of securities on December 31, 2020.

Investments (Trading)                                                              Cost                                     Fair Value

1,500 shares of Gordon, Inc., Common                     $73,500                                   $ 69,000

5,000 shares of Wallace Corp., Common                  180,000                                   175,000

400 shares of Martin, Inc., Preferred                         60,000                                     61,600

$313,500                                 $305,600                                    

All of the securities were purchased in 2020.

In 2014, Culver completed the following securities transactions.

March 1Sold the 1,500 shares of Gordon, Inc., Common, @ $45 less fees of $1,200

April 1   Bought 700 shares of Earnhart Corp., Common, @ $75 plus fees of $1,300

Culver Companys portfolio of trading securities appeared as follows on December 31, 2021

Investments (Trading)            Cost                             Cost                            Fair Value

5,000 shares of Wallace Corp., Common      $180,000                     $175,000

700 shares of Earnhart Corp. Common         53,800                         $50,400

400 shares of Martin, Inc. Preferred              60,000                         $58,000

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Instructions

Prepare the general journal entries for Culver Company for:

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