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Ulleksa [173]
3 years ago
6

Assume that the risk-free rate of interest is 5% and the expected rate of return on the market is 17%. A share of stock sells fo

r $64 today. It will pay a dividend of $2 per share at the end of the year. Its beta is 1.0. What do investors expect the stock to sell for at the end of the year?
Business
1 answer:
Ugo [173]3 years ago
7 0

Answer:

New price (P1) = $72.88

Explanation:

Given:

Risk-free rate of interest (Rf) = 5%

Expected rate of market return (Rm) = 17%

Old price (P0) = $64

Dividend (D) = $2

Beta (β) = 1.0

New price (P1) = ?

Computation of expected rate on return:

Expected rate on return (r) = Rf + β(Rm - Rf)

Expected rate on return (r) = 5% + 1.0(17% - 5%)

Expected rate on return (r) = 5% + 1.0(12%)

Expected rate on return (r) = 5% + 12%

Expected rate on return (r) = 17%

Computation:

Expected rate on return (r) = (D + P1 - P0) / P0

17% = ($2 + P1 - $64) / $64

0.17 = (2 + P1 - $64) / $64

10.88 = P1 - $62

New price (P1) = $72.88

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3 years ago
PB8.
Maurinko [17]

Answer:

Products         Selling price   Unit variable cost

                                $                       $

Junior                     50                      15

Adult                       75                      25

Expert                     <u>110 </u>                   <u> 60</u>

Total                      <u> 235 </u>                  <u> 100</u>

The sales price per composite unit = $235

The contribution margin per composite unit

= Composite selling price - Composite unit variable cost  

= $235 - $100

= $135

Break-even point in units

= <u>Fixed cost</u>

  Contribution per unit

= <u>$114,750</u>

  $135

= 850 units

Break-even point in dollars

= Break-even point in units x Composite selling price

= 850 units x $235

= $199,750

                     Income Statement    

                                                               $

Total contribution ($135 x 850 units)   114,750

Less: Fixed cost                                     <u>114,750</u>

Net profit                                                   <u> 0</u>

                                                                                                                                                                             

Explanation:

Sales price per composite unit is the aggregate of all the selling prices.

Contribution margin per composite unit equals composite selling price minus composite unit variable cost.

Break-even point in units is fixed cost divided per composite contribution margin per unit.

Break-even point in dollars equal break-even point in units multiplied by selling price.

Income statement is prepared by deducting the total fixed cost from the total contribution.

4 0
3 years ago
Western Inc. purchases a machine for $70,000. This machine qualifies as a five-year recovery asset under MACRS with the fixed de
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Western Inc. purchases a machine for $70,000. This machine qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages- <u>the cash flow from disposal is $46720</u>

Explanation:

Given that  the four-year sale is at $50,000.

we know that the book value of the machine must be established in order to determine if a gain or loss has been incurred at disposal.

The depreciation schedule for the $70,000 machine is: given as

Year 1: $70,000 &times; 0.2000 = $14,000

Year 2: $70,000 &times; 0.3200 = $22,400

<u>Accumulated Depreciation </u>= $14,000 + $22,400 = $36,400

<u>Book Value of machine </u>= $70,000 - $36,400 = $33,600

<u>Gain on disposal is</u> $50,000 - $33,600 = $16,400

Tax on Gain = Gain on disposal &times; Tax rate = $16,400 &

times; 0.20 = 20% of $16,400=20/100*16400=3,280

<u>After-Tax Cash Flow at disposal</u> = $50,000 - $3,280 = $46,720

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Answer:

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3 years ago
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