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vodomira [7]
3 years ago
15

ou are thinking about investing in stock in a company who paid a dividend of $10 this year and whose dividends you expect to gro

w at 4 percent a year. The risk-free rate is 3 percent and you require a risk premium of 5 percent. If the price of the stock in the market is $200 a share, should you buy it
Business
1 answer:
Nimfa-mama [501]3 years ago
6 0

Answer:

Yes

Explanation:

To make the decision to buy the share, we first need to calculate the fair value per share today, We can use the Dividend Discount model to estimate today's value of stock based on future cash flow ( dividend ).

The formula for Price is,

  • P = D (1 + g) / r - g
  • Where D is dividend today
  • g is the growth rate of dividend
  • r is the required return

We calculate r by adding the risk free rate and stock's risk premium.

r = 3 + 5 = 8%

Now we calculate the stock's fair price today,

P = 10 (1 + 4%) / 8% - 4%  ⇒ $260 / share

  • We compare the Fair price per share with the market price and if the fair price (260) is more then the market price (200), the share is understood to be undervalued and the decision will be to buy the share as in this case.

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Tom knows that the title insurance company made a mistake on his property title. Because of their mistake, his neighbor now has
kow [346]

Answer:

risk aversion.

Explanation:

Have you ever heard "A bird in the hand is worth two in the bush"?

It relates to safe investments or activities that yield known returns, instead of simply trying to go after more birds that you might or might not catch.

Tom knows that he can sue the title company and earn a lot of money, but he also knows that he might lose the case and instead of getting some money will have to spend a lot of his money in legal fees. Since he dislikes the risk of losing both the suit and his own money, he decided to accept the company's settlement.  

3 0
3 years ago
Plan production for a four-month period: February through May. For February and March, you should produce to exact demand foreca
Alex73 [517]

Answer:

The optimal production plan gives a total costs of $417,672 for the periods Feb to May

In Feb we will have to hire 26 workers to close the gap between demand and production from our 100 existing workers

In March however, we will have to lay them off (26 workers) to keep our production in line with demand.

In April, we are constrained to 100 workers, thus requiring that we run overtime. The overtime requirement is between 3,060 hours to max of 5,000 hours. Note that inspire of the hours chosen, demand for April still won't be fulfilled.

The best option will be the one that gives us last backlog because of the costs of backorder being extremely costly.

5,000 overtime hours in April is the best option .

In May, we are constrained to our 100 workers, meaning we will fulfill our back orders and also retain inventory in hand of 7,760 units.

The 3 pages attached show how the cost is worked out and the presentation as well.

3 0
3 years ago
Linda undertakes sales training at a successful apparel manufacturing company and gets a promotion. it has been recently brought
Anettt [7]
The answer to the question above is GIVE HIGH PRIORITY. Based on the given scenario above, what Linda should do is to give high priority since their sales have significantly dropped. In priority levels, this belongs to Priority 1 which is Urgent. Those instances that belong to urgent include issues that give a critical impact in the business such as customer experiences that results in substantial loss.
8 0
3 years ago
On January 1, a company issues bonds dated January 1 with a par value of $240,000. The bonds mature in 5 years. The contract rat
erica [24]

Answer:

The journal entry on maturity is as follows:

Dr bonds payable  $240,000

Cr cash                                     $240,000

Being redemption of bonds

Explanation:

At the end of the life of the bond,the bond premium or discount would have been fully amortized,hence the only entry left to be made is to debit bonds payable account with face value of the bond and a credit of the same amount to cash account to record the outflow of cash.

The face value of the bond is $240,000,hence the $240,000 is debited to bonds payable in order to finally cancel the debt obligation.

3 0
3 years ago
Read 2 more answers
Identify whether the following activities Ere examples Of business-level or corporate level strategy.
yaroslaw [1]

Answer: A. Business Level.

B. Corporate Level.

C. Business Level.

D. Corporate Level.

Explanation:

Business level strategies are used by a company to engage in transactions that will enable it to sell it's products and bring in profit to the company. It therefore focuses on the customers the business has.

Corporate Level strategies on the other hand are at organizing level of the Organization. In other words they deal with decisions meant to progress the company to make it bigger or more profitable. For example by selling or buying companies/ business units.

A. This is a business level activity as it focuses on the sales of their Bluetooth products.

B. This is a Corporate Level Strategy as it deals with Microsoft as an Organization entering a new market i.e diversifying for growth.

C. This is a Business level strategy as it deals with the product that the company wants to improve sales of which is SPSS.

D. This is a Corporate Level Strategy because as the text shows, the company has never tried to run a restaurant before. They are therefore diversifying and entering into a new market.

5 0
4 years ago
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