Lexington company borrows $10,000 from a bank by signing a promissory note. what are the effects of this transaction on the acco
1 answer:
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Answer:
Ans. The cost of equity capital is 6.5 (6.5%)
Explanation:
Hi, all we need to do is fill the following equation with the data from the problem.
Where:
rf = Risk free rate (in our case, 2%)
MRP = market risk premium (in our case, 6%)
r(e) = Cost of equity capital
Therefore, this is what we get.
So the cost of equity capital is 6.5% or 6.5 as the problem suggests to answer.
Best of luck.
Answer:
option (C) $1,353
Explanation:
Annual dividend paid = $1.25
Increase in dividend annually, g = 2%
Number of stocks to be purchased = 100
Rate of return, r = 12%
Price at the end of Year 3 =
here, n = 4 (after 3 years)
Price at the end of Year 3 =
or
Price at the end of Year 3 =
or
Price at the end of Year 3 = $13.53
Therefore,
Expected amount to be paid for 100 shares = $13.53 × 100 = $1,353
Hence,
the correct answer is option (C) $1,353
Answer:
The present value decreases
Explanation:
The present value of an amount of $100 to be received in one year, at an interest rate 'r', is:
As we can see, since the interest rate is in the denominator of the expression, if 'r' increases, then the present value decreases.
I.e. If the interest rate were zero, then $100 would buy the same amount of goods today as it would in one year, however, if the interest rate is positive, $100 today would buy more goods than it would in one year.