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jeyben [28]
3 years ago
15

Kimona Company hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 =

$0.85; P0 = $20.00; and g = 5.00% (constant). The CEO thinks, however, that the stock price is temporarily depressed, and that it will soon rise to $40.00. Based on the DCF approach, by how much would the cost of common equity from retained earnings change if the stock price changes as the CEO expects?
Business
1 answer:
nlexa [21]3 years ago
4 0

Answer:

-2.23%

Explanation:

The formula to compute the cost of common equity under the DCF method is shown below:

= Current year dividend ÷ price + Growth rate

In first case,

The current dividend would be

= $0.85 + $0.85 × 5%

= $0.85 + $0.0425

= $0.8925

The other things would remain the same

So, the cost of common equity would be

= $0.8925 ÷ $20 + 5%

= 0.044625 + 0.05

= 9.46%

In second case,

The price would be $40

The other things would remain the same

So, the cost of common equity would be

= $0.8925 ÷ $40 + 5%

= 0.0223125 + 0.05

= 7.23%

The difference would be

= 7.23% - 9.46%

= -2.23%

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Answer: a. The government shifted its resources from defense spending to helping big industries like the auto industry.

Explanation:

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7 0
3 years ago
Due to ____, market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rate
gayaneshka [121]

Answer:

The correct answer is C

Explanation:

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8 0
3 years ago
On June 15, Oakley Inc. sells inventory on account to Sunglass Hut (SH) for $4,500, terms 4/10, n/30. On June 20, SH returns to
Georgia [21]

Answer: $3360

Explanation:

Based on the information given in the question, the amount of cash paid by SH to Oakley will be calculated as thus:

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= $4500 - $1000

= $3,500

Therefore, the amount of cash payment that is made by SH to Oakley will be:

= $3,500 - (4% × $3,500)

= $3500 - (0.04 × $3500)

= $3500 - $140

= $3360

Therefore, the amount of cash paid by SH to Oakley is $3360.

7 0
3 years ago
Joey wants to buy a $3,000 vehicle with 20 percent down for three years at 12 percent interest. what will his monthly payment be
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<h3>What is the purpose of the interest rate?</h3>

An interest rate informs you of how much borrowing will cost you and how much saving will pay off. Therefore, the interest rate is the amount you pay for borrowing money and is expressed as a percentage of the entire loan amount if you are a borrower.

Learn more about interest rate: brainly.com/question/13324776

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5 0
2 years ago
If import restrictions remain in effect after an infant industry becomes competitive in the domestic​ market, consumers in this
sertanlavr [38]

Answer: higher than

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8 0
3 years ago
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