1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
lisov135 [29]
3 years ago
7

Rossdale Co. stock currently sells for $72.87 per share and has a beta of 1.22. The market risk premium is 7.10 percent and the

risk-free rate is 2.90 percent annually. The company just paid a dividend of $4.29 per share, which it has pledged to increase at an annual rate of 3.45 percent indefinitely. What is your best estimate of the company's cost of equity?
Business
1 answer:
Paul [167]3 years ago
7 0

Answer:

Cost of Equity =11.56%

Explanation:

The cost of equity can be determined using any of the following methods:

  1. The Dividend Valuation Model(DVM)
  2. Capital Asset Pricing Model (CAPM)

The Dividend Valuation Model(DVM) is a technique used to value the worth of an asset.

According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return.  

Price = D/Kp

D- Dividend payable

Kp- cost of preferred stock

The capital asset pricing model (CAPM): relates the price of a share to the market risk or systematic risk. The systematic risk is that which affects all the all the economic agents, e.g inflation, interest rate e.t.c  

This CAPM is considered superior to DVM because it incorporates risk. Hence, we will use the CAPM  

Using the CAPM , the expected return on a asset is given as follows:  

E(r)= Rf +β(Rm-Rf)  

E(r) =? , Rf- 2.90%, Rm-Rf- 7.10% β- 1.22

E(r) = 2.90% + 1.22×(7.10)% = 11.562  %

Cost of Equity =11.56%

You might be interested in
I NEED THIS ASAP
scoray [572]

A Digital Lab is a good digital learning environment for someone who is studying science.

Electronic Health Records are technology trends found in the field of medicine.

If you are looking for an out-of-print copy of a book, you should check a <u>Digital Library</u> .

(I just answered the question on Edgenuity myself)

7 0
3 years ago
(a) Where the parent company does not hold 100 percent equity of the subsidiary company, what portion of the intra-group transac
emmainna [20.7K]

Answer:

Follows are the solution to this question:

Explanation:

In point a:

If the parent firm doesn't hold the conglomerate's equity stake, depreciation expense acknowledged by the parent company's owner and expenditures shall be removed throughout the consolidated statement of financial position. Its combined cash flow deletes debts previously recognized as assets for both the parent corporation and as debts for all the subsidiaries to offer a real and equal view. All the intragroup balance should be removed to avoid double-counting of financial assets resulting from payments in between the group's members.

In point b:

If a parent company has a stake in a subsidiary that is called noncontrolling interest over 50%, but less than 99 percent. Its parent company shall report a different non-controlling interest line on the income statement and revenue report to reveal its noncontrolling interest.

In point c:

Its Group of non - management Concerns may not claim responsibility mostly on a share of a benefit, doesn't have any influence from over parent's decision. Intra-group payments in a word-level shall be removed.

In point d:

Its NCI share of the opening in net assets of the subsidiary + NCI share of even an amortization fair value + NCI profits due to NCI - (dividend payable to the noncontrolling shareholder) = unlawful interest at the date of the merger is three steps for the calculation of total the uncontrol value.

7 0
3 years ago
Warr Company is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's pr
BartSMP [9]

Answer:

Option B, IRR is 14.42%

Explanation:

The IRR is the rate of return that equates the cost of the project to the present value of cash flows receivable from the project in future.

Using an excel approach, the formula formula IRR is given as:

=irr(values)

The values in this case are

-$1300 in  year 0

$450 in year 1

$450 in year two

$450 in year 3

$450 in year 4

The irr gives 14.42% as shown in the spreadsheet attached

The cost of the investment of the investment project of $1300 equals the present values of its cash flows at 14.42% rate of return

Download xlsx
4 0
4 years ago
By Nike changing the technology in their shoe, they are taking on a role of being more socially responsible. What type of busine
Arisa [49]

Explanation:

In this case, Nike is incorporating corporate governance into its business model, which is defined as a model for managing companies using the best market practices, using transparency, equity and social and environmental responsibility as essential parameters.

Companies today are no longer perceived by society as merely profitable entities, it is a social demand that companies assist in the development of society and minimize their impacts on the environment.

When companies develop programs to support society and sustainability, it guarantees the advantages of being better positioned in the market, attracting more investors, adding more value to its products and services and gaining a strategic and competitive advantage in the market.

5 0
3 years ago
Which of the following statements best explains why the red bar goes up when the blue goes up?
vesna_86 [32]

<u>Answer: </u>Higher spending than taxing results in a deficit, which contributes to more debt.

<u>Explanation:</u>

Here the red bar is referred to the debt and the blue bar is referred to the spending. When the government spending is more it decreases the government revenue and creates a deficit in the funds. When there is deficit it means the government borrows funds for spending which increases the debts.

Government spending to improve the status of the economy in the country. It Invests is various activities for growth and development purpose. Only on collecting high taxes the revenue of the government will increase. When taxes collected are low the government revenue is also low.

8 0
3 years ago
Other questions:
  • An arbiter is consulted when
    12·1 answer
  • Is wearing glasses all the time bad?
    6·1 answer
  • Which statement best describes the qualifications for information technology professions
    5·1 answer
  • The accountants at Gamone Phones, a cell phone manufacturing company, discover that the firm has performed poorly over the last
    15·1 answer
  • At a price of $15 each, marta buys 4 books per month. when the price increases to $20, marta buys 3 books per month. luz says th
    5·1 answer
  • What happens if you perm your hair after washing it?
    7·1 answer
  • Which of the following statements about high-LPC leaders is most likely true?
    12·1 answer
  • The financial reporting carrying amount of Johns-Hopper Company's only depreciable asset exceeded its tax basis by $750,000 at D
    9·2 answers
  • What are the emerging issues of sustainabity and the environment?​
    13·1 answer
  • Which of the four main methods of international entry did assan motors employ to expand into the u. s.? What are the strengths a
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!