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alexira [117]
3 years ago
11

Oval Inc. just paid a dividend equal to $1.50 per share on its common stock, and it expects this dividend to grow by 4 percent p

er year indefinitely. The firm plans to issue common stock, which has a $16 per share market price, to raise funds to support operations. Oval's investment bankers estimate that the flotation costs for new issues of common stock will be equal to 8 percent of the issue (market) price. What is Oval's cost of new common equity, re?a.13.38%b.10.60%c.8.76%d.18.55%e.14.60%
Business
1 answer:
Rainbow [258]3 years ago
8 0

Answer:

e. 14.60%

Explanation:

The computation of Oval's cost of new common equity is shown below:-

Price of stock = Estimated dividends for next period ÷ (Required rate of return - Growth rate)

Dividend =  $1.50 × (1 + 4%)

= $1.56

Price of stock would be the price net of flotation cost

= $16 × (1 - 8%)

= $14.72

Required rate of return

= (1.56 ÷ 14.72) + 0.04

= 14.60%

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(not 100% sure on answer but I believe it is bonds)
6 0
3 years ago
if you’ve just recovered from prostate cancer within the last few years, an insurance company might require you to pay a 20% ext
lesya692 [45]

Answer:

Gross premium = $100

Monthly Net premium = $70

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4 0
3 years ago
Agency conflicts between managers and shareholders Consider the following scenario and determine whether an agency conflict exis
Ivenika [448]

Answer:

Agency conflicts between managers and shareholders

1. A New Beginning (ANB)

A. Yes; Alexander is misappropriating some of Akiko's wealth by unilaterally purchasing a nonbusiness asset using ANB's funds.

2. The Green Zone Inc. (TGZ):

B. No; although an agency relationship exists between TGZ's management-including Tae as TGZ's chairman and CEO and the firm's shareholders-there is no agency conflict, because no expropriation or wasting of the shareholders' wealth has occurred.

3. In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the__LONG-TERM____value of the company's common stock price.

4. In addition to well-designed executive compensation packages, two other motivational forces can align the interests of managers with those of their shareholders.

a. Reward the manager with a combination of salary and stock options

b. Let the manager to understand that a takeover can happen if she does not perform well.

5. In the late 1980s and early 1990s, Congress passed legislation making it more difficult for outside investors to stage hostile takeovers. This legislation likely__increases____conflicts between managers and stockholders.

Explanation:

Agency conflicts of interest exist in any relationship where one party is expected to act in another's best interests.  Agency problems or conflicts of interest usually exist between a company's management and the company's stockholders.  But, it can equally exist in a relationship where one party acts against the interest of the other.

5 0
3 years ago
Jones signs a three-year contract to construct a new office building for Smith. The contract price is $3 million and estimated c
nasty-shy [4]

Answer:

$100,000

Explanation:

Jones incurs $1.2 million in cost and estimates that during year 3 an additional $1.1 million will be necessary to complete the project

additional costs for year 3 over the estimated costs represent an additional loss}

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2 years ago
Tom's Shoes makes a profit from selling its shoes, provides free shoes to children in countries in need, encourages volunteers t
Tcecarenko [31]

Answer: Value of its stakeholders

Explanation: Tom's shoes is doing the charity work and also earning good profits from selling its product. Stakeholders refers to all those parties who will get affected due to operations of the business.

One of the stakeholders for every business entity is the society in which it resides in. Tom's shoes is creating value to one of its stakeholders by free distribution of its product to those in need .

3 0
3 years ago
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