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igor_vitrenko [27]
3 years ago
12

The FI Corporation's dividends per share are expected to grow indefinitely by 5% per year. a. If this year’s year-end dividend i

s $8 and the market capitalization rate is 10% per year, what must the current stock price be according to the dividend discount model? b. If the expected earnings per share are $12, what is the implied value of the ROE on future investment opportunities? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) c. How much is the market paying per share for growth opportunities (that is, for an ROE on future investments that exceeds the market capitalization rate)?
Business
1 answer:
Rasek [7]3 years ago
8 0

Answer:

a) Div₁ = $8

Re = 10%

g = 5%

P₀ = Div₁ / (Re - g) = $8 / (10% - 5%) = $8 / 5% = $160

b) we can use the following formula: g = ROE x b

g = growth rate = 5%

b = retention rate = ($12 - $8) / $12 = 0.3333

ROE = g / b = 5% / 33.33% = 15%

c) the present value of growth opportunity (PVGO) = P₀ - EPS / Re = $160 - $12/10% = $160 - $120 = $40

the market is paying $40 for the company's growth opportunity

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What is a wrong reason for wanting to start your own business?
Ksju [112]

Answer:

All of the above

Explanation:

Those are all the wrong reasons for starting your own business. Your business almost certainly will fail if you start it based on any of those reasons.

6 0
2 years ago
. As you start consuming potato chips, your marginal utility is very high, but it begins to fall slowly until you've eaten 10 ch
scoray [572]

Answer:

The correct answer is 10 chips.

Explanation:

A person is eating chips. Initially, the marginal utility is very high, but after 10 chips it starts declining. It declines till 49 chips and after that it becomes negative.  

We see that the marginal utility derived from the consumption of chips start to decline after consuming 10 chips.

This implies that marginal utility is being maximized at the consumption of 10 chips.  

So the utility-maximizing quantity of chips is 10 chips.

6 0
3 years ago
Two items are omitted from each of the following summaries of balance sheet and income statement data for two proprietorships fo
bulgar [2K]

Answer:

The solution according to the given query is provided below.

Explanation:

The given question seems to be incomplete. The attachment of the complete query is provided below.

Now,

The additional investment will be:

= Ending \ owner's \ equity-Beginning \ owner's \ equity+Drawings-Net \ income

By putting the values, we get

= 40000-25000+37000-45000

= 7,000

Now,

The drawings will be:

= Ending \ owner's \ equity-Beginning \ owner's \ equity+Additional \ investment-Net \ income

By putting the values, we get

= 130000-80000-25000-40000

= -15,000

3 0
2 years ago
Billy Thornton borrowed $140,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The bank uses
kolbaska11 [484]

Answer:

$845.83

Explanation:

The computation of the interest is shown below:

= Principal × rate of interest × number of days ÷ (total number of days in a year)  

= $140,000 × 7.25% × (30 days ÷ 360 days)

= $845.83

Simply we applied the simple interest formula by multiplying the principal, interest rate and the time period so that it can arrive with the correct amount

3 0
2 years ago
Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash f
zepelin [54]

Answer:

44%

Explanation:

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

Internal rate of return can be determined using a financial calculator

Cash flow in year 0 = $-30 million

Cash flow in year 1 = $13 million

Cash flow in year 2 = $23 million

Cash flow in year 3 = $29 million

IRR = 44%

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.  

6 0
2 years ago
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