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
Levart [38]
3 years ago
10

Sonny's BBQ Company recently issued $85 par value preferred stock that pays an annual dividend of $9. Analysts estimate that the

stock has a beta of 1.01. The current T-bill rate is 2.4%. The S&P 500's expected return is 12.1%. Assuming that CAPM holds, what is the intrinsic value of this preferred stock?
Business
1 answer:
Bond [772]3 years ago
5 0

Answer:

Intrinsic value=$73.77

Explanation:

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

<em> 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.</em>

Price = D/Kp

D- Dividend payable

Kp- cost of preferred stock

So will need to work out the cost of equity using CAPM

<em>The capital asset pricing model (CAPM)</em>: 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 model is considered superior to DVM. 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- 2.4%, Rm- 12.1% β- 1.01

E(r) = 2.4% + 1.23×(12.1- 2.4)%  = 12.20 %

Cost of preferred stock= 12.20 %

Using the dividend valuation model

Intrinsic value = 9/0.1220=73.77

Intrinsic value=$73.77

You might be interested in
Amherst City provides a defined benefit pension plan for employees of the city electric utility, an enterprise fund. Assume that
Sever21 [200]

Answer:

Dr Service cost 245,000

Cr Interest 166,400

Cr Cash 411,400

Dr Plan assets - pension 411,400

Cr Service cost 245,000

Cr Interest 166,400

Explanation:

Preparation of the journal entries to record annual pension expense for the enterprise fund of Amherst City

Since we are Assuming that the plan investments was $184,300 while the service cost component is the sum of $245,000, and interest on the pension liability is the sum of $166,400 for the year this means the Journal entries to record annual pension expense for the enterprise fund of Amherst City will be:

Dr Service cost 245,000

Cr Interest 166,400

Cr Cash 411,400

(245,000+166,400)

Dr Plan assets - pension 411,400

(245,000+166,400)

Cr Service cost 245,000

Cr Interest 166,400

4 0
3 years ago
Vermilion Inc., a manufacturer of high-technology medical devices, has its product development centers located in the United Sta
Korolek [52]

Answer: Global-standardization strategy

Explanation:

Global-standardization strategy could be defined as using a model to market a product globally. It's the scenario where an organization uses the same marketing strategy of a product across various countries. The advantage of this is that it results in global brand coverage and makes reduction for cost.

Vermilion Inc. has her product produced in various countries but uses the same marketing model or strategy to sell globally, this method is known as Global-standardization strategy

7 0
3 years ago
Free <br><br> nh<br> h<br><br> h<br> h<br> h<br> h<br> h<br><br> h<br> h<br> h<br> h<br><br> hh
valina [46]

Answer:

i agree

Explanation:

3 0
3 years ago
Read 2 more answers
On January 1, 2021, Crane Company sold property to Wildhorse Company. There was no established exchange price for the property,
Olegator [25]

Answer:

interest expense    409,406.4 debit

           note payable              409,406.4 credit

Explanation:

We have to apply the market rate to the carrying value of the note payable:

$4,094,064 x 10% = 409,406.4 interest expense

We will increase the note payable and declare the interest expense

Then, at payment we decrease our note payable account against cash.

3 0
3 years ago
To make your business messages more effective, revise for vigor and directness. You can strengthen your writing by unburying ver
vagabundo [1.1K]

Answer:

The correct answers are letters "A" and "D": The entire team engaged in the preparation of the proposal Paul submitted on Wednesday; I’ll make an assumption that Lisa received the e-mail.

Explanation:

Buried verbs are actions that were converted into noun expressions typically to give more emphasis in the action performed. However, buried verbs night provide a redundant sense to the message intended to be provided. To give clear messages, the buried verb should be unburied by simplifying it without changing meaning in the whole segment. Thus:

  • <em>The entire team </em><u><em>engaged in the preparation</em></u><em> of the proposal Paul submitted on Wednesday.</em>
  • <em>The entire team </em><em>prepared</em><em> for the proposal Paul submitted on Wednesday.</em>

<em />

  • <em>I’ll </em><u><em>make an assumption</em></u><em> that Lisa received the e-mail.</em>
  • <em>I'll </em><em>assume</em><em> Lisa received the e-mail.</em>
5 0
3 years ago
Other questions:
  • Rios Co. makes drones and uses the variable cost approach in setting product prices. Its costs for producing 30,000 units follow
    10·2 answers
  • Joe quit his job as a salesman where he made $35,000 per year to start his own t-shirt making business. his business expenses ar
    13·1 answer
  • Erica, a team manager, was known for heading projects with diligence and conscientiousness. However, she was insensitive and exc
    7·1 answer
  • Melissa has been working to develop drought-resistance seeds that require little water to grow and which produce grain. she want
    13·1 answer
  • The mass of the box is 5kg (the mass center is located in the middle of the box), the mass of a lower arm plus a hand is 1.5 kg
    8·1 answer
  • At the beginning of the year (January 1), Buffalo Drilling has $10,000 of common stock outstanding and retained earnings of $7,2
    5·1 answer
  • What is the net cost today of the cheapest option?
    6·1 answer
  • To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operation
    12·1 answer
  • Can regional level employment be converted into national level<br>employment? Why? Why not ?​
    15·1 answer
  • Sam and Joan made an offer of $250,000 asking the seller to pay all closing costs. They will put 10% down and pay one discount p
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!