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levacccp [35]
3 years ago
14

Rossdale Co. stock currently sells for $73.09 per share and has a beta of 1.23. The market risk premium is 7.00 percent and the

risk-free rate is 2.86 percent annually. The company just paid a dividend of $4.33 per share, which it has pledged to increase at an annual rate of 3.35 percent indefinitely. What is your best estimate of the company's cost of equity
Business
1 answer:
vesna_86 [32]3 years ago
3 0

Answer:

Explanation:

The cost of equity can be estimated using two (2) different models:

  1. <em>The Dividend Valuation Model</em>
  2. <em>The capital asset pricing model (CAPM)</em>

<em>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.  </em>

The model is stated below as follows

P = D(1+g)/ke-g)  

<em>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 </em>

<em>This model is considered superior to DVM. Hence, we will use the CAPM</em>

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

E(r)= Rf +β(Rm-Rf)

E(r) =? , Rf- 2.86%, Rm-Rf - 7.00 β- 1.23

E(r) = 2.86% + 1.23× 7%

= 2.86% + 8.61%

= 11.47 %

Cost of equity= 11.47 %

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Bonita Industries began the year by issuing $75500 of common stock for cash. The company recorded revenues of $772000, expenses
Alex

Answer:

net income = $106,000

Explanation:

net income = total revenues - total expenses = $772,000 - $666,000 = $106,000

Any additional capital raised will increase the company's cash flows (financing activity) and any dividends distributed will decrease them (another financing activity), but they do not affect the company's net income.

3 0
3 years ago
A manufacturer estimates that its product can be produced at a total cost of C(x) = 50,000 + 100x + x3 dollars. If the manufactu
timofeeve [1]

Answer:

The level of production x that will maximize the profit is: 22,966

Explanation:

C(x) = 50,000 + 100x + x³

R(x) = 3400x

P(x) = R(x) - C(x)

      = 3400x - [50,000 + 100x + x³]

      = 3400x - 50,000 - 100x - x³

      = 3300x - 50,000 - x³   .................... (A)

P'(x) = 3300(1) - 0 - 3x²

       = 3300 - 3x²

At a critical point, P'(x) = 0

∴   0 = 3300 - 3x²

  3x² = 3300

    x² = 1100

     x = ± \sqrt{1100}

P"(x) = -6x

P(\sqrt{1100}) = -6 (\sqrt{1100})   < 0

by second derivative, 'P' max at    x = \sqrt{1100} = 33.17 (rounds)

since x =  \sqrt{1100} ,

recall that P(x) = 3300x - 50,000 - x³ from equation (A)

Therefore, Maximum Profit

P(\sqrt{1100}) = 3300\sqrt{1100} - 50000 - \sqrt{1100} ^{3}

              = 3300(33.17) - 50,000 - 33.17³

              = 109461 -50,000 - 36495.26

              = 22,965.74

Maximum profit is 22,966 to the nearest whole number

5 0
3 years ago
A hospitality company is evaluating building a new hotel in Bloomington (capital project) that management forecasts will generat
Gre4nikov [31]

Answer:

A

Explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.  

Only projects with a positive NPV should be accepted. A project with a negative NPV should not be chosen because it isn't profitable.  

When choosing between positive NPV projects, choose the project with the highest NPV first because it is the most profitable.

NPV can be calculated using a financial calculator  

Cash flow in year 0 = $-165,000

Cash flow in year 1 - 6  = $45,000

I = 12%

NPV = $20,013.33

the project should be approved because NPV is positive

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

3 0
3 years ago
If a researcher were to ask consumers to quickly name the top 3 brands of computers they might consider purchasing, the most com
Murrr4er [49]

Answer:

C. Evoked Set

Explanation:

Evoked set simply describes a set of brand that comes to a buyer's mind when a thinks of buying a product. They are brands that customers are aware of and when they consider buying a product, they think of those they are aware of. A good example is the one asked in the question, when a customer thinks about buying a computer, the brands that he's aware of and think about would most likely be Dell, Apple and Hp. In marketing, achieving evoked set is the wish of every marketer of a particular brand. This is because, these categories of goods are the ones that are most likely to be purchased. Lots of companies spends a lot in advertising to make it to customers evoked set because of the presumed benefits that comes with it.

8 0
3 years ago
The Solow model basically states that as more rural and backward economies start to develop, they will use more intensively thei
mash [69]

Answer:

The Solow model basically states that as more rural and backward economies start to develop, they will use more intensively their cheap labor and savings for investment more than already developed nations, and convergence between rich and poor nations will eventually occur.

Explanation:

The Solow growth model is an exogenous model of growth that tries to examine the changes in the level of output in an economy as a result of some changes in the economy. The changing conditions are; population, rate of savings and technological advancement. The Solow model named after Robert Solow who was a Nobel-prize economist winner, formed the foundation for modern theories of economic growth. Solow's growth models has a variety of assumptions as shown;

1. Rate of population growth is constant

2. The proportion of savings in the economy is constant.

3. The same technology is utilized by all companies in the economy for production.

4. The capital accumulation equation forms a relationship between; Present capital stock, future capital stock, the rate of capital depreciation, and level of capital investment.

Solow's model implied that as more rural and backward economies start to develop, they will use more intensively their cheap labor and savings for investment more than already developed nations, and convergence between rich and poor nations will eventually occur.

8 0
3 years ago
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