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tekilochka [14]
3 years ago
11

The company has a target capital structure of 40% debt and 60% equity. Bonds pay 10% coupon (semi-annual payout), mature in 20 y

ears, and sell for $849.54. The company stock beta is 1.2. The risk-free rate is 10%, and the market risk premium is 5%. The company is a constant growth firm that just paid a dividend of $2.00, sells for $27.00 per share, and has a growth rate of 8%. The company's marginal tax rate is 40%. The cost of equity using the capital asset pricing model (CAPM) and the dividend discount model (DDM) is:
Business
1 answer:
vladimir2022 [97]3 years ago
7 0

Answer:

Explanation:

Dividend discount model (DDM) is a method of calculating the cost of equity. The formula is as follows;

cost of equity; r = (D1/P0) +g

whereby, D1= next year's dividend

P0 = Current price of the stock = 27

g = the stock's dividend growth rate = 8% or 0.08 as a decimal

D1 = D0 (1+g)

D1 = 2 (1+0.08) = 2.16

Next, plug in the numbers to the formula

r = (2.16/27)+0.08

r = 0.08 + 0.08

r = 0.16 or 16%

<u>Cost of equity using CAPM</u>

CAPM is Capital asset pricing model. It is also used to estimate the cost of equity.

CAPM; r = risk free + beta ( market risk premium)

r = 0.10 +1.2(0.05)

r = 0.10 + 0.06

r = 0.16 or 16%

Therefore, DDM and CAPM give the same cost of equity.

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While on a trip to South Africa, Elena was impressed with colorful woven outdoor placemats, floor mats, chair cushions, and umbr
iren2701 [21]

Answer:

Before starting her import business, Elena should try to gather relevant information from companies that import goods, and if possible information about companies that import African goods.

Explanation:

Elena might be right about American consumers liking African products, but if importing those goods is too difficult, or is subject to several trade barriers, or some other issues, then Elena might have to reconsider her idea. Sometimes no matter how good a business idea is, if it is impractical to carry out, then t is useless.

6 0
3 years ago
Marginal revenue:
natima [27]

Answer:

A. is the change in total revenues resulting from a change in output.

Explanation:

  • The marginal revenue is the additional revenue that can be generated by the addition of the sales of one more unit and by selling those additional units of the gods that will lead to change in the output and increase in the demand values of the product and services. And is equal to the price the company charges form the buyers.
5 0
3 years ago
Pam runs a hot dog cart at the sports stadium. Will has no​ skills, no job​ experience, and no alternative employment. Entrepren
DochEvi [55]

Answer:

rate of return of fund = 3.66%

Explanation:

start = 327/23 = 14.22

end = 349/29 = 12.04

distributions = 1.5 + 1.2 = 2.7

rate of return of fund = 12.04-14.22 +2.7 / 14.22

= 3.66%

4 0
3 years ago
A company has revenues of $100 during Year 1. Each year their profit is 20% of revenue. Revenue is growing 15% per year. How muc
oksian1 [2.3K]

Answer:

$406.07

Explanation:

Revenue for year 1 = $100

Profit = 20%

Growth rate of revenue, = 15% per year = 0.15

Now,

year 1 is the base year thus, take it as n = 0

Revenue for the year = $100 × ( 1 + r )ⁿ

Profit = 20% of [$100 × ( 1 + r )ⁿ]

Year       n              Revenue               Profit

  1           0            $100( 1 + r )⁰            $20

  2          1            $100( 1 + r )¹             $23

  3          2            $100( 1 + r )²            $26.45

  4          3            $100( 1 + r )³            $30.4175

  5          4            $100( 1 + r )⁴            $34.98

  6          5            $100( 1 + r )⁵            $40.227

  7          6            $100( 1 + r )⁶            $46.261

  8          7            $100( 1 + r )⁷            $53.2004

  9          8            $100( 1 + r )⁸            $61.1804

  10         9            $100( 1 + r )⁹            $70.357

   Hence,

Total profit for the year 1 - 10 = $406.07

5 0
3 years ago
Suppose that the United States and Canada both produce only two products, televisions and food. The United States can produce 10
algol13

Answer:

Option A. Two - Third of a television

Explanation:

Using Unitary Method,

Here, the opportunity cost of producing 150 pounds of food in US = 100 televisions

Similary the opportunity cost of producing 1 pound of food in US = 100 / 150 televisions = 0.66 televisions = 2/3 televisions

So the right option is A.

3 0
3 years ago
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