Answer:
(a) $34.61; 11.54
(b) $32.81; 10.94
Explanation:
(a) Stock Price = D ÷ (Ke – G)
Where,
D is dividend next year,
Ke is required rate of return on equity
G is growth rate
Growth rate = ROE × plow-back ratio
= 0.12 × 0.40
= 0.048 or 4.8%
Dividend = Current EPS × (1 - plow back ratio)
= $3 × 0.6
= $1.8
Stock Price:
= $1.8 ÷ (0.10 - 0.048)
= $34.61
P/E Ratio = Stock Price ÷ EPS
= $34.61 ÷ $3
= 11.54
(b) New growth rate = 0.12 × 0.30
= 0.036 or 3.6%
Dividend = Current EPS × (1 - plow back ratio)
= $3 × 0.7
= $2.1
Stock Price = $2.1 ÷ (0.10 - 0.036)
= $32.81
P/E Ratio = Stock Price ÷ EPS
= $32.81 ÷ $3
= 10.94
Answer:
B. An unsold inventory of automobiles produced in that year
Explanation:
GDP is the measure of all the total value goods and services produced within the borders of a country per period. In calculating GDP, economists consider the value of finished products only. Capital goods or goods used to manufacture other products are also not included in GDP. Excluding capital and work-in-progress eliminates the chances of double counting.
The flour used in bakeries and the steel used in the production of automobiles are inputs used to make other goods; hence they will not be included in GDP calculations. Goods produced in the previous period cannot be included in the current GDP calculation as they were accounted for in the year of their production.
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