Answer:
The stock is worth $17.50 per share today
Explanation:
The price per share today can be calculated using the DDM where expected dividends are discounted back to present value to calculate the share price. When the dividend growth becomes zero, we will calculate the terminal value at the end of Year 3 and discount it back too. The formula for price of the stock today is,
P0 = D1 / (1+r) + D2 / (1+r)^2 + D3 / (1+r)^3 + [ (D4 / r) / (1+r)^3]
P0 = 1.45 / (1+0.09) + 1.5 / (1+0.09)^2 + 1.53 / (1+0.09)^3 +
[ (1.6 / 0.09) / (1+0.09)^3]
P0 = $17.50
Answer:
Debt equity ratio = 1.01
Explanation:
given data
WACC = 11.2 percent
cost of equity = 16.8 percent
pretax cost of debt = 8.7 percent
tax rate = 35 percent
to find out
What does the debt-equity ratio need to be for the firm to achieve its target WACC
solution
we get here WACC that is express as
WACC = Wd × Rd × (1-t) + We × Ke ..................1
here Wd is weight of debit and t is tax rate and Ke is cost of equity and
Wd + We = 1
so We = 1 - Wd
put value in equation 1
WACC = Wd × Rd × (1-t) + We × Ke
11.20% = Wd × 8.70% ×(1-35%) + (1-Wd) × 16.80%
solve and we get
Wd = 0.5025
so We will be
We = 1 - 0.5025
We = 0.4975
and
Debt equity ratio will be
Debt equity ratio =
Debt equity ratio = 1.01
Answer: The correct option is "c.exercising an in-the-money put option".
Explanation: If you consider the equity of a firm to be an option on the firm’s assets then the act of paying off debt is comparable to <u>exercising an in-the-money put option</u> on the assets of the firm.
because he would be paying the debt with the participation in the equity of the company.
Answer:
d. Applying a blanket gross profit rate to merchandise that have wide varying rates of gross profit
Explanation:
To know what problem could arise fro mthis method, we must understand the method:
ending inventory = cost available for sales - sales x (1- gross profit)
being cost available for sales = beginning invnetory + purchases
a) if a portion of inventory is destroyed, then we subtract it from the cost available for sales and we should be okay.
b) the amount of purchase is being considered so it will not produce a distorsion
c) then beginning invnetory equals to zero in the formula of cost availalbe and we are also okay
d) here is the problem, if there is a wide array of gross profit we could do an average but it will lead to distorsion if the sales are not in the expected weight.
Answer:
It is likely that the way things are done in Ronson Foods is not the same as it is obtainable in East Coast Organics,I meant cultural differences.
Explanation:
Without mincing words,culture is about the way things are done in a particular business environment,ranging from the kind of attitude to work expected from employees,their dress code,those things that are acceptable during working hours and those that are not acceptable.
For instance, in some organizations it is forbidden to smoke or drink during office hours while it is not a problem at all in some others,what is important is job delivery.
The major challenge with the prospective acquisition of East Coast Organics is cultural blend.
How do we achieve a balance between the two cultures that would be equitable enough for employees to adjust accordingly.
It might so interest one to note that cultural differences might force productive employees of East Coast Organics to another company where such issue does not arise.