Using the Gordon Growth Model (a.k.a. Dividend Discount Model), the intrinsic value of a stock can be calculated, exclusive of current market conditions. In this model, the value of the stock is equated to the present value of the stock's future dividends.
<span>Value of stock (P0) = D1 / (k - g)
</span>where
D1<span> = </span><span>expected annual </span>dividend<span> per share in the following year </span>
<span>k = the investor's discount rate or required </span>rate of return
g = the expected dividend growth rate
<u>From the problem:</u>
The value of stock is $10.80
D1 is $0.40
g is 0.08
k is unknown
Solution:
Rearranging the equation for Gordon Growth Model to solve for k:
k = (D1/P0) + g
Substituting the variables with the given values,
k = (0.40/10.80) + 0.08
k = 0.1170
In percent form, this is
0.1170 * 100% = 11.70%.
Thus, the total rate of return on the stock is 11.70%.
Answer:
A. Reject (Alternative 1) $0.00
Accept (Alternative 2) $1.12
Differentials Effect on income (Alternative 2) $1.12
B. Accepted (Alternative 2)
Explanation:
a. Preparation of a differential analysis dated March 16 on whether to reject (Alternative 1) or accept (Alternative 2) the special order.
DIFFERENTIAL ANALYSIS
Reject (Alternative 1) or Accept (Alternative 2)
March 16
Reject Accept Differentials Effect on income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenue per unit $0.00 $7.20 $7.20
Costs:
Variable manufacturing costs per unit
$0.00 -$5.00 -$5.00
Export tariff per unit
$0.00 -$1.08 -$1.08
($7.20*15%=$1.08)
Income (Loss) per unit $0.00 $1.12 $1.12
b. Based on the above differential analysis
the special order should be ACCEPTED (Alternative 2).
Answer:
Just prior to completing the adjusted trial balance, Paula prepared the <em><u>Adjusting entries </u></em>section. After she finishes the adjusted trial balance, she will complete the <em><u>financial statement </u></em>section of the worksheet.
Explanation:
Starting from the two first column of the unadjusted trial balance The accountant will prepare and complete the adjusting entries section. After that, the combination of the unadjusted TB and the adjusting entries will give the adjusted trial balance. After that, the account balance is distributed according to the financial statement --> Balance sheet and income statement.
Answer:
At year-end, factory overhead is $21,000
Explanation:
Predetermined overhead rate = (Estimated overhead costs/Estimated direct labor costs)
Predetermined overhead rate = ($404000 / $2020000) = 20%*Direct labor costs
Hence, Applied overhead costs= (20% * $1,810,000)
Applied overhead costs=$362000.
Hence balance in factory overhead account at year end = $383,000 - $362,000
=$21,000.
Answer:
A and B
Explanation:
A) income statement
insurance expense-understand net income-overstated
B) balance sheet
prepaid insurance -overstated stockholders equity -overstated
