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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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Answer:

The correct answer would be B, Money in a checking account.

Explanation:

Liquid assets are one in the category of assets that are ready to be converted into cash. Cash held by a company is the considered the liquid asset of the company. Or any assets which can be converted into cash without losing so much of its value is called a liquid asset. For example if a company holds gold bars as one of the assets, then this would be considered as the liquid asset because gold can easily be converted into cash in case of need. Account Receivables, Gold, deposits receipts, securities, bonds, etc are considered to be the liquid assets of the company after Cash.

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Answer:

It is convenient to make the changes.

Explanation:

Giving the following information:

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Fixed overhead= $11.00.

New costs:

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To determine whether the changes increase profit or not, we need to calculate the unitary contribution margin per unit for both options:

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Actual Contribution margin:

Contribution margin= 57.6 - (22 - 24 - 11)= 0.6

New contribution margin:

Contribution margin= 97.60 - (26.4 - 28.8 - 11)= $31.4

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Explanation:

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What do you think is meant by the phrase "both alien and non-alien"?
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