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grandymaker [24]
3 years ago
5

A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Giv

en its risk, you have a required rate of return for it of 12%. Your expected rate of return and investment decision is as follows:a. 10% - do not buy.b. 12% - do not buy.c. 14% - buy.d. 16% - buy.e. 18% - buy.
Business
1 answer:
Xelga [282]3 years ago
7 0

Answer:

d. 16% - buy

Explanation:

R = (D1 / P0) + g

Where, R=Expected Return, P0 = Current Market Price = $40, D1=Expected Dividend=$, g = Expected Growth Rate = 11% = 0.11

Expected Return = R = ($2/$40) + 11%

R = 0.05 + 0.11

R = 0.16

R = 16%

Expected Return is higher than the required return of 12%.  Hence, it should be bought (it is expected to give higher return than required)

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Answer:

Answer is explained in the explanation section below.

Explanation:

Data Given:

LSL = 4.96 cm

USL = 5.04 cm

Mean = 5 cm

SD = 0.01 cm

1. Capability Index:

Cpk = min ( \frac{USL - Mean }{3SD} , \frac{Mean - LSL}{3SD} )

So, now, we need to find the following:

\frac{USL - Mean }{3SD} = \frac{5.04 - 5 }{3 * 0.01}

\frac{USL - Mean }{3SD} = \frac{0.04}{0.03}

\frac{USL - Mean }{3SD} = 1.33

Similarly,

\frac{Mean - LSL }{3SD} = \frac{5 - 4.96 }{3 * 0.01}

\frac{Mean - LSL }{3SD} = \frac{0.04}{0.03}

\frac{Mean - LSL }{3SD} = 1.33

So,

Cpk = min ( \frac{USL - Mean }{3SD} , \frac{Mean - LSL}{3SD} ) = 1.33

2. Maximum Standard deviation allowed.

Let SD be maximum standard deviation allowed.

So,

Mean - 3SD = 4.96     Equation 1

Mean + 3SD = 5.04    Equation 2

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It is much easier to do it by phone, or by simply mailing back a detachable form. If the client knows how to use internet and emails properly, then the bank must provide an easy option to opt out through an email or an option that can be found in the bank's website.

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