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Natalka [10]
3 years ago
13

Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next

three years, respectively. Beginning four years from now, the dividend is expected to increase by 3 percent annually. What is one share of this stock worth to you today if you require a 12.5 percent rate of return on similar investments?
Business
1 answer:
lora16 [44]3 years ago
6 0

Answer:

$41.96

Explanation:

The first thing you need to do is to calculate terminal value at the end of time t = 3. Then the intrinsic value of the stock is sum of discounted cashflow from t =1 to t = 3 (cashflows at t = 3 includes dividend as well as terminal value).

Terminal value at t = 3 = Dividend in year 4/(Required rate of return - Dividend growth)

                                     = 4.25 x (1 + 3%)/(12.5% - 3%)

                                     = 46.08

Then value of the stock is calculated as below:

Stock intrinsic value = 3.8/(1 + 12.5%) + 4.1/(1 + 12.5%)^2 + (4.25 + 46.08)/(1 + 12.5%)^3

                                  = 41.96

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You bought one of Lambert Sandblasting Company's 15-year bonds one year ago for $960. These bonds pay 7 percent annually, have a
maksim [4K]

Answer:

Real return on investment: 22.9465%

Explanation:

Okay let's explain each concept we have given:

<em>Face Value</em>                                         $1,000

This is the ammount Lambert will pay at maturity

Purchase Value                                   $  960

This is the Ammount we pay for the bond

<em>Market Value of the bond today         $   ???</em>

This is what we need to determinate to see the return we got

Once we got the market Value we will do:

Market Value / Purchase Value   - 1 = rate of return

Now the <em>market value today will be the present value of the bond,</em> and the bond has the following data:

  • Mature in 14 year
  • bond rate 7% annualy.

So each year we receive the 7% of the face value ($1,000) = $70

And at the end of the bond life we receive 1,000

We need to bring this numbers at present day using the real market rate, because the economy is having inflation:

market rate  8%

inflation rate 2.7%

real rate:  

(1+rate)/(1+inflation) -1 = real rate

\frac{1.08}{1.027} -1 = real rate

real rate = 5.16%

To know the present value of the bond we will have to consider:

  • present value of an annuity of 70$ during 14 year at a rate of 5.16% =
  • present value of the 1,000 that will be pay at maturity at a rate of 5.16%

<em>The annuity will be </em>

70 * \frac{1-(1+0.0516)^-14}{0.0516} = 685.87

C * \frac{1-(1+rate)^-time}{rate} = present value

$685,87

<em>The present value of the 1,000 will be</em>  

face value/(1+rate)^time

1,000/(1+0.0516)^14 = $494,42

for a total of $1.180,29

Now we will calculate the real return on the investment:

we receive 1.180,29 for 960 so the rate is

1.180,29 /960 - 1 = 0.229465 =  22.9465%

8 0
3 years ago
Quuizlet the two common methods of processing credit and debit card transactions are
Elenna [48]
There are two main ways to process debit and credit card transactions. The first is to swipe the card on a machine that reads your information based on your strip. The strip will automatically take money from your debit account with a PIN authorizing the transaction. If you swipe a credit card, it will ask for a signature. Another way a machine can read your information is by use of a chip. The chip is embedded in the card and it reads and authorizes your information once its slid in and accepted.  
4 0
2 years ago
Jermaine lives in a world where the nominal interest rate is 3% and the inflation rate is 1%. today, jermaine has $200, with whi
Assoli18 [71]
<span>Divide $200 by 80 to get $2.50 price per zap. At 3%, Jermaine's $200 would grow to $206 ($200 x 1.03) = $206 by the end of the year. At the end of one year he would have $6 more and would be able to purchase two more zaps (2 X ($2.50 X 1.03), or 2 X $2.575 = $5.15) He would have $.85 left in change.</span>
4 0
3 years ago
Skysong Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at
k0ka [10]

Answer:Skysong journal $

Date

December 2020

Raw material Dr 984,100

Loss on raw material 48,000

Supplier Cr 1,032,100

Narration. recognition of raw materials purchased at agreed value.

2021

Supplier Dr. 1,032,100

Bank Cr. 1,032,100

Narration. Payment for raw materials purchased at agreed value.

Explanation:

The raw materials needs to be paid for at the agreed value not withstand ing the fall in value. However stock are to be recognized at cost or net realisable value which ever is less and since the market value of the stock has dropped this has to be recognized as a loss in the income statement to avoid the stock been over value.

6 0
3 years ago
Greg needed to earn some money to help pay for
son4ous [18]

It would depend on which Greg you are referring to.

<span>If it’s Greg from Cabin Fever, he needed more money to buy gifts.</span>

If it Greg from the Diary of a Wimpy Kid, he needed more money to buy food, more specifically cookies.

5 0
3 years ago
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