1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Snowcat [4.5K]
3 years ago
7

Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter are expected to grow at the constant rate of 4%

per year. The risk-free rate is 5%, and the expected return on the market portfolio is 12%. The stock has a beta of 0.72.
a. Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Market capitalization rate _____ %
b. What is the intrinsic value of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Intrinsic value ___ $.
Business
1 answer:
morpeh [17]3 years ago
7 0

Answer:

a. 10.04%

b. $82.78

Explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

a. Expected rate of return or market capitalization = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

= 5% + 0.72 × (12% - 5%)

= 5% + 0.72 × 7%

= 5% + 5.04%

= 10.04%

The Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is applied.

b. Now the intrinsic value would be

= Expected dividend ÷ (Required rate of return - growth rate)  

= $5 ÷ (10.04% - 4%)

= $5 ÷ 6.04%

= $82.78

You might be interested in
A company estimates that the appropriate discount rate (i.e., the cost of capital) for Project A, Project B, Project C and Proje
aliina [53]

Answer:

a. Project A requires an up-front expenditure of $1,000,000 and generates a net present value of $3,200.

Explanation:

a.

The company should accept project A because it provides a positive net present value of $3,200 that is the highest among all the projects.

b.

When the IRR of a project is lower than the required rate of return of the project, it will generate the negative net present value because at IRR the net present value of the project will be zero and at a higher rate than IRR it will be negative.

c.

The project with a profitability index of less than 1 generates a negative NPV because the present value of future cash flows is less than the initial cash outflow.

d.

Project D also generates a positive net present value but it is lower than project A. So, after comparing the results we will choose the project with higher NPV.

4 0
3 years ago
The abrupt end of long distance cattle drives in 1885 was primarily due toa. the development of railroad cars that could haul ca
vladimir1956 [14]

Answer:

a. the development of railroad cars that could haul cattle.

Explanation:

The abrupt end of long distance cattle drives in 1885 was primarily due to the development of railroad cars that could haul cattle.

It was the advent of expanding rail road lines that terminated the cattle drive through Kansas because the end points of the cattle trail shifted to meet expanding railroad lines.

It was logical that as the railroads expanded to meet the cattle drive, one had to give way to the other because cattle do stray and trains could haul cattle

8 0
3 years ago
A ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for t
miskamm [114]

Answer:

Explanation:

A swap transaction in the inter bank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. The purchase and sale are with the same counterpart. A swap may be considered a technique for borrowing another currency on a fully collateralize basis.

3 0
3 years ago
Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch
netineya [11]
More to the question?
4 0
3 years ago
From a marginal analysis perspective, what is the inventory carry cost for Andrews if the company carries one additional unit of
Viktor [21]
Yes it is at the all the way at the end of it
7 0
2 years ago
Other questions:
  • Suppose we have a bond issue currently outstanding that has 25 years left to maturity. The coupon rate is 9% and coupons are pai
    9·1 answer
  • Bonita uses the periodic inventory system. For the current month, the beginning inventory consisted of 7300 units that cost $12.
    14·1 answer
  • What are three factors that can cause a supply change for phones
    14·1 answer
  • A registered representative who engages in private securities transaction is required to do all of the following except:[A] give
    15·1 answer
  • Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial st
    11·1 answer
  • Flint Corporation traded a used truck (cost $21,600, accumulated depreciation $19,440) for a small computer with a fair value of
    5·1 answer
  • A company purchased a plant asset for $53,000. It has a salvage value of $3,000 and annual depreciation expense of $5,000. It ca
    10·1 answer
  • What Characteristics of the Confederate States of American made it a confederal government when compared to the government of th
    12·1 answer
  • Why target market trade is executed
    6·2 answers
  • Your firm’s biggest client is coming to town today. You have been assigned the important task of showing him the town and being
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!