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Wewaii [24]
3 years ago
14

Joker stock has a sustainable growth rate of 7 percent, ROE of 10 percent, and dividends per share of $1.20. If the P/E ratio is

15.0, what is the value of a share of stock?
Business
1 answer:
belka [17]3 years ago
8 0

Answer:

P/E ratio = <u>Market price per share</u>

                Earnings per share

15 = <u>Market price per share</u>

       $4

Market price per share = 15 x $4 = $60

Growth rate = Retention rate x ROE

0.07 = Retention rate x  0.10

<u>0.07</u> = Retention rate

0.10

Retention rate = 0.7 = 70%

Dividend pay-out ratio = 100% - 70%

Dividend pay-out ratio = 30%

Earnings per share = 100/30 x $1.20 = $4

Explanation:

In this case,  we will apply the formula of price-earnings ratio, which is market price per share divided by earnings per share. The P/E ratio was given while the earnings per share is derived. The market price per share becomes the subject of the formula.

In order to determine the earnings per share, we need to obtain the retention ratio by applying the formula of growth rate. In this case, growth rate and ROE were provided in the question with the exception of retention rate. Thus,  the retention rate is made the subject of the formula.  Having obtained the retention rate, we will now obtain the dividend payout ratio which is 100% minus retention rate.

Then, we will obtain the earnings per share by dividing 100 by the pay-out ratio multiplied by the dividend per share.

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5 0
1 year ago
The Laffer curve shows the relationship between tax rates and ____________ and depicts the benefits of cutting taxes when tax ra
MrMuchimi

Answer: tax revenue

Explanation:

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The curve is typically used to show that there can be an increase in the total revenue for an economy when the tax rate is reduced.

7 0
2 years ago
Required information E12-3 Understanding the Computation of Cash Flows from Operating Activities (Indirect Method) [LO 12-2] [Th
kompoz [17]

Answer:

Net income = $320

Net cash flow from Operating activity = $145

Explanation:

The journal entries are shown below:

1. Cash A/c Dr $485

        To Service revenue A/c $485

(Being sales service is provided for cash)

2. Salary expense A/c Dr $165

   Outstanding salary expense A/c Dr $175

              To Salary and wages payable A/c  $340

(Being salary expense is recorded)

Salary and wages payable A/c  $340

       To Cash $340

(Being salary and wages are paid)

The net cash flow from operating activities would be

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= $485 - $340

= $145

The net income would be

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= $485 - $165

= $320

Cash flow from Operating activities under the indirect method  

Net income $320

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Net Cash flow from Operating activities $145

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Explanation:

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Red means Stop

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