Answer:
a. The best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends is 10.91%
a. The best estimate of the company’s cost of equity capital using the geometric average growth rate is 10.88%
Explanation:
a.
Time Dividend per share ($) Growth
-4 1.80
-3 1.98 10.00%
-2 2.05 3.54%
-1 2.16 5.37%
0 2.24 3.70%
Average 5.65%
D0 = $ 2.24 / share
g = 5.65%
D1 = D0 x (1 + g)
= 2.24 x (1 + 5.65%)
= $ 2.37
Current share price = P = $ 45 = D1 / (Ke - g)
The cost of equity = D1 / P + g
= 2.37 / 45 + 5.65%
= 10.91%
Therefore, The best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends is 10.91%
a. What if you use the geometric average growth rate?
A DPS of $ 1.80 / share 4 years back has given way to a DPS of $ 2.24 today.
CAGR, g = (2.24 / 1.80)1/4 - 1
= 5.62%
D1 = 2.24 x (1 + g)
= 2.24 x (1 + 5,62%)
= $ 2.37
cost of equity = D1 / P + g
= 2.37 / 45 + 5.62%
= 10.88%
Therefore, The best estimate of the company’s cost of equity capital using the geometric average growth rate is 10.88%
Answer:
B!
Explanation:
Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.
Answer: network
Explanation:
Network externality simply states that demand for a good or service has to do with how other people demand for that particular good or service. It means consumer's buying patterns are influenced by the purchase of others buying the product.
Therefore, a network externality exists when the number of customers who purchase a good or use it influences the quantity demanded.
Answer: (D) Corporate strategy
Explanation:
The corporate strategy is one of the type of strategic planning method that helps in achieving the main objective of the company and also improving the various types of business units in an organization.
The corporate strategy basically creating the values and also developing the various types the various types of unique advantages for selling the products and the services in the market.
According to the given question, due to some political instability the strategic leader of the company decided to divest in the business and this is known as the corporate strategy.
Therefore, Option (D) is correct answer.
Answer: c. adding depreciation to EBIT in the TIE formula
Explanation:
The Times Interest Earned Ratio is used to measure the ease by which a company can pay its interest charges using its earnings before tax.
As depreciation is a non-cash expense, the amount apportioned to depreciation can be used when paying for interest so adding it back to the EBIT ensures that the cash resources of the company are included in the analysis of whether a company can pay back debt.
