Answer:
The stock A is most valuable as the fair value of Stock A is $100 which is more than the fair value of Stock B ( $83.33) and Stock C ($34.28).
Explanation:
to calculate the fair price of the stocks, we will use the DDM or dividend discount model. The DDM bases the value of a stock on the present value of the expected future dividends from the stock.
Let r be the discount rate which is 10%.
a.
The stock is like a perpetuity as it pays a constant dividend after equal intervals of time and for an indefinite period.
The price of this stock can be calculated as,
Price or P0 = Dividend / r
P0 = 10 / 0.1 = $100
b.
The constant growth model of DDM can be used to calculate the price of this stock as its dividends are growing at a constant rate forever.
P0 = D1 / r - g
Where,
- D1 is the dividend for the next period
- r is the cost of equity or discount rate
- g is the growth rate in dividends
P0 = 5 / (0.1 - 0.04)
P0 = $83.33
c.
The price of this stock can be calculated using the present of dividends.
P0 = 5 / (1+0.1) + 5 * (1+0.2) / (1+0.1)^2 + 5 * (1+0.2)^2 / (1+0.1)^3 +
5 * (1+0.2)^3 / (1+0.1)^4 + 5 * (1+0.2)^4 / (1+0.1)^5 + 5 * (1+0.2)^5 / (1+0.1)^6
P0 = $34.28
Answer:
C
Explanation:
The highest mountain could fit into the deepest ocean basin.
Videotapes, Physical evidence (something with possible DNA), Pictures.
Answer
The answer and procedures of the exercise are attached in the following archives.
Explanation
You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.
Answer:
b. 8.225%
Explanation:
In this question, we use the Rate formula which is shown in the spreadsheet.
The NPER represents the time period.
Given that,
Present value = $754.08
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 7.25% ÷ 2 = $36.25
NPER = 9 years × 2 = 18 years
The formula is shown below:
= Rate(NPER,PMT,-PV,FV,type)
The present value come in negative
So, after solving this,
1. The pretax cost of debt is 11.75%
2. And, the after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 11.75% × ( 1 - 0.30)
= 8.225%
