Answer:
Cost of equity for new stock will be 12.8 %
So option (a) is correct option
Explanation:
We have given the common stock sells for $32.50
Earning per share = $3.50
Dividend pay out ratio = 60 %
So dividend will be = 3.50×0.6 = $2.1
Growth rate = 6 % = 0.06
Flotation rate = 5% = 0.05
We have to find the cost of new stock
We know that cost of equity from new stock will given by
Answer: Please refer to Explanation
Explanation:
1) You want to have $2 million when you are 65 which is 35 years from now. The interest rate is 5% and you need to know how much to deposit per year to get to that level. The $2 million is therefore the future value of your contributions which makes this an Annuity.
To calculate for the Annuity amount use the following formula,
FV of Annuity = Annuity ( ( (1 + i)^ n -1 )/ i )
2,000,000 = A ( ( ( 1 + 5%) ^ 35 -1 ) / 5%)
2,000,000 = A ( (1.05^35 -1 )/5%)
2,000,000 = A (90.3203074)
A = 2,000,000/90.3203074
A = $22,143
You should set aside $22,143 every year.
2) The major flaw in the calculation is the assumption that the interest rates will remain the same over the 35 years. This is almost impossible and will affect the amount that would need to be deposited every year to achieve the target. If the interest rate should increase then it will increase the amount that you are to get meaning you can get more than $2 million then you would not have to deposit as much to get to $2 million. If it decreases however, you will have to deposit more to get to the required $2 million because the amount earned in interest will not enable you to get to $2 million in that timeframe. .
A few things could fit in this blank, but market research seems to be the most likely. This could also be data mining.
Are there options to choose from?
To choose the two best, we have a target of two candidates, A & B
The first one chosen is either A or B, with a propability of 2/5.
The second one is the only interested candidate out of 4, so 1/4.
So probability of choosing the best two is 2/5*1/4=1/10.
Alternatively, use the combination formula,
P(AB in any order) = 5!/(2!3!)=120/(2*6)=1/10
or in general,
n choose r = nCr = n!/(r!(n-r)!)
Answer:
e. Company Heidee has a higher ROE than Company Leaudy.
Explanation:
Return on equity measures how well the management of a business uses owner's equity to get returns. It is calculated by dividing net income by owner's equity.
That is
ROE= Net Income ÷ Owner's equity
Considering the accounting equation
Asset= Liability + Owner equity
Owner equity= Asset - Liability
From the equation when a company that take on more debt owner's equity will reduce.
The effect of reduction in owner's equity on Return on Equity is that it will increase the ratio, since owner's equity is the denominator.
In this scenario both companies have the same profit margin so if company Heidee has higher debt ratio it follows that it also has a higher ROE than Company Leaudy
