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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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XYZ Company had 200,000 shares of common stock outstanding on December 31, 2020. On July 1, 2021, XYZ issued an additional 44,00
-Dominant- [34]

The XYZ Company's basic earnings per share are $0.71, while the diluted earnings per share are $0.72.

Data and Calculations:

Outstanding Common stock shares on Dec. 31, 2020 = 200,000 shares

July 1, 2021, Issuance of 44,000 shares

Total outstanding common stock

January 1, 2021, Issuance of 16,000 convertible preferred stock

Par value of preferred stock = $100 per share

The Dividend rate of preferred stock = 6%

Convertibility of preferred stock = 8 common shares

Net income = $270,000

Preferred dividend = $96,000 ($1,600,000 x 6%)

Earnings for common stockholders = $174,000 ($270,000 - $96,000)

Basic earnings per share = (Net income - Preferred Dividend)/244,000

= ($174,000)/244,000

= $0.71

Convertible Preferred into Common stock = 128,000 (16,000 x 8) shares

Total shares = 372,000 (244,000 + 128,000)

Diluted earnings per share = $270,000/372,000

= $0.73

Learn more: brainly.com/question/22374514

8 0
2 years ago
g Depreciation refers to which one of the following? The amount of money that is lost over a period when services are underutili
Ganezh [65]

Answer:

The answer is D

Explanation:

Depreciation is best described as An estimate of how much of a tangible asset has been used during an accounting period: considered an expense that does not require any cash outflow under the accrual basis accounting.

Depreciation reduces the value of an asset and it reduces it over the life span of an asset. Depreciation is a non cash reduction. Depreciation tells us how much the value of an asset has reduced.

The formula is (cost of the asset - any residual value) ÷ the number of useful life span

6 0
3 years ago
Assume the following information for Kingbird Corp. Accounts receivable (beginning balance) $139,000 Allowance for doubtful acco
dezoksy [38]

Answer:

Prepare journal entries of sales, collections, write offs of accounts receivable, and reverse entries:

Date        Account details and explanations      Debit          Credit

                 Accounts receivable                          944,000  

                sales revenue                                                        944,000

                 Allowance for doubtful accounts      5300

                Accounts receivable                                                    5300

                Accounts receivable                            1800

                 Allowance for doubtful accounts                                1800

                cash                                                        1800

                 Accounts receivable                                                    1800

Calculating the ending balance of accounts receivable and unadjusted ending balance of allowance for doubtful accounts:

                  particulars                                                             Amount ($)

                 beginning balance of accounts receivable           139,000

                 Add: Net credit sales                                               944,000

                 less :  Collections                                                     908,000

                 Write-offs                                                                       5,300

                  Add: Reinstated amount                                              1800

                 less:  Collections                                                            1800

                  Ending  balance of accounts receivable                169700

                   particulars                                                             Amount ($)

                 beginning balance of doubtful accounts               11,370

                 less :  Write-offs                                                        5300

                 Add: Reinstated amount                                           1800

                 Ending  balance of unadjusted  balance                 7870

                 allowance of  doubtful accounts

Preparing journal entry to record bad debt

Date    Account details and explanations         Debit          Credit

           Bad debt expense ( 169700*8%) - 7870  12789

               allowance of  doubtful accounts                            12789

7 0
3 years ago
Which one is the best choice. Please explain why. I’ll give extra points.
S_A_V [24]

Answer:

10

Explanation:

Surplus for Donovan: 10 - 4.50 = 5.50

Surplus for Rudy: 8 - 4.50 = 3.50

Surplus for Mike: 6 - 4.50 = 1.50

Surplus for Royce: 4 - 4.50 = -0.50

Sum of all surpluses: 5.50+3.50+1.50-0.50=10

7 0
2 years ago
A photocopier cost 96000 when new and has accumulated depreciation of 95000. if the business discards this plant asset, the resu
Semenov [28]

A photocopier cost 96000 when new and has accumulated depreciation of 95000. if the business discards this plant asset, the result is  $1,000.

Cost of photocopier        $    96,000.

Less: Accumulated depreciation   $  (95,000).

Loss on discard            $       1,000.

A photocopier (also known as a copier or copier, formerly Xerox machine, a generic trademark) is a machine that copies documents and other visual images onto paper or plastic film quickly and inexpensively.

The photocopier (also known as copier or copier, formerly Xerox machine, generic brand) is a machine that copies documents and other visual images onto paper or plastic film quickly and inexpensively. Most modern copiers use a technology called xerography. It is a dry process that uses the electrostatic charge of a photosensitive photoreceptor to first attract toner particles (powder) and then transfer them to paper in the form of an image.

Learn more about photocopier here: brainly.com/question/25307534

#SPJ4

3 0
1 year ago
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