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Kisachek [45]
4 years ago
7

The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the requir

ed return and dividend growth rate as follows:
P0P0 = = D1rs−gD1rs−g
1. Which of the following statements is true?

A. Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources.
B. Increasing dividends will always increase the stock price.
C. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth.

2. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $0.85 at the end of the year. Its dividend is expected to grow at a constant rate of 9.50% per year. If Walter’s stock currently trades for $20.50 per share, then the expected rate of return on the stock is:

A. 9.56%
B. 13.65%
C. 11.60%
D. 17.75%

3. Walter’s dividend is expected to grow at a constant growth rate of 9.50% per year. What do you expect to happen to Walter’s expected dividend yield in the future?

A. It will increase.
B. It will decrease.
C. It will stay the same.
Business
1 answer:
ohaa [14]4 years ago
8 0

Answer:

1. C

2. B. 13.65%.

Explanation:

1. Some of the portion of Earnings After Tax is given out to Shareholders in the form of Dividends and some of it is retained for growth Purposes. As the Retained Earnings are used for expansion and growth, that's why the formula for Growth is (ROE)*(Retention Ratio). When companies pay out large amount of dividends, it is left with minimal amount for retention which affects its growth rate and the rate tends to decrease.

If you look at the model of Constant Growth, also given in the question, the Growth Rate is deducted in Denominator. A lower growth rate will increase the denominator value and hence the stock price will go down.

2. Rearrange the formula for Constant Growth:

P0 = D1 / (Ke - g) OR Ke = (D1/P0) + g

⇒ Ke = (.85/20.5) + .095 = .1365 OR 13.65%.

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Answer / Explanation:

Kindly note that the question is incomplete. However, kindly find the complete question below and the answer.

Complete Question

Water is flowing in a trapezoidal channel at a rate of Q=20m³/s . The critical depth y for such a channel must satisfy the equation:

0 = 1 − Q² / gA³c . B Where g= 9.81m /s²  and Ac = the cross-section area can be related to depth y by B = 3+y and Ac = 3y+y²/2. Solve for the critical depth using (a). the graphical method,

Answer:

Given the equation,

0 = 1 − Q² / gA³c. B

Now substituting the given value g= 9.81m /s² , Q =20m³/s, B = 3+y, and Ac = 3y+y²/2,

We get:

0 = 1 - 20² / (9.81) ( 3y + y²/2)³ (3+y)

Hence we choose f(y) =  1 - 40.7747 / (3y + y²/2)³ . (3 + y) and solve for f(y) = 0

Therefore,

To solve using a graph, we take twelve sample points ( starting at y = 0.25 in step of 0.25m and plot a graph using MS- Excel. Kindly find the graph below.

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6 0
3 years ago
Virginia has business property that is stolen and partially destroyed by the time it was recovered. She receives an insurance re
murzikaleks [220]

Answer:

$4,000

Explanation:

The computation of amount of Virginia's casualty loss is shown below:-

If property is personal property or is not absolutely destroyed, then the amount of loss of casualty is the lower of:

1. The adjusted asset base, or

2. Reducing the fair market value of the property as a result of the incident

But loss of casualty, should be decreased by any salvage value by any insurance or even other reimbursement that you obtain or consider.

Basis = $14,000

Decrease in fair market value = $10,000

Lower of above = $10,000

From insurance company the Reimbursement is = 6000

So, the  Loss of Casualty = $10,000 - $6,000

= $4,000

5 0
4 years ago
Lisa quit her $20000-per-year job to start her own economics consulting firm. At the end of her first year of operation, her tot
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Answer:

Economic profit for the year is

Explanation:

The accounting profit will be Revenue - expenses (150,000-35,000) $ 115,000. However this problem requires us to calculate economic profit. Economic profit is different from accounting profit. While calculating it opportunity costs also become part of expenses as implicit costs. Detail calculation is given below.

Economic profit = 150,000 -35,000-20,000 = $ 95,000

7 0
3 years ago
You spent $500 last week fixing the transmission in your car. Now, the brakes are acting up, and you are trying to decide whethe
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Answer: Sunk cost

Explanation:

Sunk cost also sometimes referred to as past cost is a cost that has already been spent by an individual or firm and cannot be recovered.

From the question, if $500 was spent last week in fixing the transmission in a car and the brakes are now acting up, and one has to decide qwhether to fix them or trade the car in for a newer model.

The amount spent on the brake situation in this case is a sunk cost as it has already been incurred and nothing can be done about it anymore.

8 0
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