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Contact [7]
3 years ago
12

Cache Creek Manufacturing Company is expected to pay a dividend of $4.20 in the upcoming year. Dividends are expected to grow at

the rate of 8% per year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate on the stock and use the constant-growth DDM to determine the intrinsic value of the stock. The stock is trading in the market today at $84. Using the constant-growth DDM and the CAPM, the beta of the stock is _________.
Business
1 answer:
Digiron [165]3 years ago
8 0

Answer: 0.9

Explanation:

The Expected Return on an investment can be calculated using the Dividend Discount Model as it is a key component in thw formula which is,

P = D1 / r - g

where,

D1 is the dividend paid next year

P is the current stock price

g is the growth rate

r is the expected return

With the given figures we have,

84 = 4.20 / r - 0.08

84 ( r - 0.08) = 4.20

r - 0.08 = 4.20/84

r = 4.20/84 + 0.08

r = 0.13

The Expected Return can be slotted into the CAPM formula to find the beta.

The CAPM formula calculates the Expected Return in the following manner,

Er = Rf + b( Rm - rF)

Where,

Er is expected return

Rf is the risk free rate

Rm is the market return

b is beta

Slotting in the figures gives,

0.13 = 0.04 + b( 0.14 - 0.04)

0.13 = 0.04 + b (0.1)

0.13 - 0.04 = 0.1b

b = 0.09/0.1

b = 0.9

Using the constant-growth DDM and the CAPM, the beta of the stock is 0.9

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inysia [295]
The answer is The income effect. 
Income effect is described as the change in demand of a service or good brought on by change in the income of a consumer.It is observed in two cases first is when income of person increases and second is when price of goods or service decreases. 
The scenario given in the question is an example of second case as the price of burger was less than normal Steve perceived his income to be able to buy more product in same price
8 0
3 years ago
Mill Company began operations on January 1, 20X1, and recognized income from construction-type contracts under different methods
Vinvika [58]

Answer:

Deferred tax asset balance on  December 31, 20X3 =   $115,500

Explanation:

The computation of the amount of deferred income taxes should Mill report is shown below:

<u>Year   Tax purpose   Book purpose   Difference   Deferred tax book </u>

20X1     $400,000          $0                $400,000        $84,000

20X2    $625,000     $375,000         $250,000        $52,500

20X3     $750,000     $850,000        ($100,000)        ($21,000)

Deferred tax asset balance on  December 31, 20X3 =   $115,500

5 0
2 years ago
can frictional unemployment by itself explain the fact that the late 2010s saw more job openings than unemployed workers
neonofarm [45]

Answer:

Frictional unemployment cannot by itself explain the fact that the late 2010s saw more job openings than unemployed workers.

Instead, frictional unemployment points to the fact that some people are unemployed because they are just entering the labor market for the first time after a long period of absence.

Explanation:

As a part of natural unemployment, frictional unemployment arises when workers search for new jobs or transition from one job to another.  During economic recession, there is no increase in frictional unemployment.  Typical examples of frictional unemployment are caused by graduating students who join the labor force and are unemployed until they find work and parents who rejoin the workforce after taking sometime to stay at home and raise their children.

4 0
2 years ago
n the first two years your investment increases by 2.5% annually, in the third year it returns 12% but in the fourth year it goe
mote1985 [20]

Answer:

Ans. The average annual rate of return over the four years is 2.792%

Explanation:

Hi, first let´s introduce the formula to use

r(Average)=\sqrt[n]{(1+r(1))*(1+r(2))*(1+r(3))+...(1+r(n))}-1

Where:

r(1),(2),(3)...n are the returns in each period of time

n =number of returns to average (in our case, n=4).

With that in mind, let´s find the average annual return over this four years.

r(Average)=\sqrt[4]{(1+0.025)*(1+0.025)*(1+0.12)+(1-0.07))} -1=0.022792

Therefore, the average annual return of this invesment in 4 years is 2.2792%

Best of luck.

5 0
3 years ago
A privately owned summer camp for youngsters has the following data for a 12-week session: Charge per camper $480 per week Fixed
riadik2000 [5.3K]

Answer:

a) (480-320)X - 192,000

where:

X is the camper amount which is an integer between;

0 < X <200

b) it will require 1,200 over the course of 12 weeks

c) operating gain of 115,200

d)  marginal cost at 80% capacity: 320

   average cost: 420 per camper per week

Explanation:

b) contribution per camper:

480 - 320 = 160 dollars

fixed cost 192,000

192,000 / 160 = 1,200 campers

c) at 80% capacity:

200 camper x 12 weeks x 80% x 160 contribution  =

  307.200‬ contribution

<u> - 192,000 </u>fixed cost

  115,200 operating gain

d) the marginal cost per camper would be the 320 cost per week as the fixed cost are incurrent already thus, each new camper cost is only their variable cost.

the average cost per camper will be:

200 camper x 12 weeks x 80% = 1,920 campers

the average cost would be the sum of variable and fixed cost:

(1,920 x 320  + 192,000) / 1,920 = <em>420‬</em>

<em />

we cna verify this:

(480 - 420) x 1,920  = 115.200‬

we get the same income as before thus, the calculation are correct.

3 0
3 years ago
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