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Zepler [3.9K]
3 years ago
15

Majestic Homes' stock traditionally provides an 7% rate of return. The company just paid a $2 a year dividend which is expected

to increase by 4% per year. If you are planning on buying 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 8% at the time of your purchase?
Business
1 answer:
liberstina [14]3 years ago
6 0

Answer:

$52

Explanation:

Data provided as per the question

Recent dividend = $2

Market rate of return = 8%

Growth Rate = 4%

(Its expected to increase so it will be (1 + 4%) = 1.4%

The computation of price is shown below:-

Price = Recent dividend × (1 + Growth rate ) ÷ (Cost of equity - Growth rate)

= ($2 × 1.04) ÷ (0.08 - 0.04)

= $2.08 ÷ 0.04

= $52

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Ivahew [28]

Answer:

the annual pre-tax cost of debt is 10.56%

Explanation:

the beore-tax component cost of debt will be the actual market rate of the bonds, as they offer an interest rate of 11% but are selling at 104 points not at par thus, there is a difference between the rates.

We solve for the rate which makes the coupon and maturity 104

with excel or a financial calculator

PV of the coupon payment

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 5.500 (100 x 11%/2)

time 60 (30 years x 2 payment per year)

rate <em>0.052787474</em>

5.5 \times \frac{1-(1+0.0527874736258532)^{-60} }{0.0527874736258532} = PV\\

PV $99.4338

PV of the maturity

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   100.00

time   60.00

rate  <em>0.052787474</em>

\frac{100}{(1 + 0.0527874736258532)^{60} } = PV  

PV   4.57

<em><u>Adding both we should get 104 which is the amount the bonds is selling:</u></em>

PV coupon $99.4338 + PV maturity  $4.5662 = $104.0000

The rate is generated using goal seek or wiht a financial calculator.

This rate is a semiannual rate, so we multiply by 2 to get the annual cost of debt:

0.052787474 x 2 = 0.105574947

The cost of debt for the firm is 10.56%

5 0
3 years ago
Which of the following is a common human relations mistake?
telo118 [61]

D is. It's very wrong to underestimate somebody's abilities or knowledge. We should never do that. It's also rude.

3 0
3 years ago
During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasur
Anton [14]

Answer:

c. $2,000

Explanation:

total loss claim = business auto loss + stock investment loss

                         = $1,000 + $1,000

                         = $2,000

Therefore, The Kim may claim $2,000 of these losses.

3 0
3 years ago
Darwin Inc. sells a particular textbook for $20. Variable expenses are $14 per book. At the current volume of 50,000 books sold
Ksenya-84 [330]

Answer:

Fixed costs= $300,000

Explanation:

Giving the following information:

Selling price per unit= $20

Variable expenses= $14

Break-even point in units= 50,000

<u>To calculate the fixed costs, we need to use the following formula:</u>

Break-even point in units= fixed costs/ contribution margin per unit

50,000= fixed costs / (20 - 14)

50,000*6= fixed costs

Fixed costs= $300,000

7 0
3 years ago
On January 1, 2018, Lumos Company purchased a machine for $70,200. Lumos uses straight-line depreciation and estimates an eight-
jeka94

Answer:

Gain= $4,200

Explanation:

Giving the following information:

Purchase price (2018)= $70,200

Salvage value= $5,400

Useful life= 8 years

Selling price= $42,000

<u>First, we need to calculate the depreciation expense and accumulated depreciation:</u>

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (70,200 - 5,400) / 8

Annual depreciation= $8,100

Accumulated depreciation (ending 2021)= 8,100*4= $32,400

<u>If the selling price is higher than the book value, the company gain from the sale. Now, we need to determine the book value.</u>

<u></u>

Book value= purchase price - accumulated depreciation

Book value= 70,200 - 32,400= $37,800

Gain/loss= selling price - book value

Gain/loss= 42,000 - 37,800

Gain= $4,200

6 0
3 years ago
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