Answer:
a.
r = 0.06697 or 6.697% rounded off to 6.70%
b.
r = 0.1202 or 12.02%
Explanation:
a.
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
- D0 * (1+g) is dividend expected for the next period /year
- r is the required rate of return or cost of equity
Plugging in the values for P0, D0 and g in the formula, we can calculate the value of r to be,
76 = 0.5 * (1+0.06) / (r - 0.06)
76 * (r - 0.06) = 0.53
76r - 4.56 = 0.53
76r = 0.53 + 4.56
r = 5.09 / 76
r = 0.06697 or 6.697% rounded off to 6.70%
.
Using the CAPM, we can calculate the required/expected rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.
The formula for required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free rate
rM is the market return
r = 0.059 + 1.2 * (0.11 - 0.059)
r = 0.1202 or 12.02%
Answer:
B) increase its net income by $7,000
Explanation:
If Sprockets replaces the equipment:
- salvage value of old equipment $29,000
- new depreciation costs ($125,000 - $25,000 = $100,000)
- money saved using new equipment $13,000 per year x 6 years = $78,000
total benefit of buying new equipment = $29,000 - $100,000 + $78,000 = $7,000
Answer:
1.425 dollars of value added
Explanation:
The value of the painting added by Caroline is between the $75 dollar of raw materials and the $1,500 which is the amount at which she sold the canvas in the art gallery.
If, over the course of time the canvas market value increase this will not change the value added by Caroline.
1,500 - 75 = 1.425 dollars
If the decrease in unearned revenue is subtracted from net income, it will eliminate the effect of recording revenues that would have increased the Net income earlier. But since, the cash has already been received so there will be no effect on cash.
Answer:
The correct answer is option A.
Explanation:
Normal goods have positive income elasticity, so when there is an increase in the income of the consumer, the quantity demanded of the normal goods will increase.
On the other hand, the inferior goods have a negative income elasticity. So when the income of the consumer increases the demand for inferior goods decline. This is because as income increases, the consumers will prefer normal goods.
