Answer:
A. $19,034
Explanation:
The computation of the present value for 20 years cash flow is shown below:
For the First 10 years
Given that
Payment for first 10 years = $2,000
Discount rate = 11%
Now the present value is
= $2000 ÷ 1.11 + $2,000 ÷ 1.11^2 +...........+ $2,000 ÷1.11^10
= 11,778.46402 ..............(1)
For the Next 10 years
Given that
Payment for next 10 years = 3,500
Discount rate = 11%
Now the present value is
= $3,500 ÷ 1.11 + $3,500 ÷ 1.11^2 +...........+ $3,500 ÷ 1.11^10
= 20,612.312
So, today present value is
= $20,612.312 ÷ 1.1110
= 7,259.339 ...........................(2)
Now
Total present value is
= $7,259.339 + $11,778.46402
= $19,034
Answer:
The EPS is approximately:
it can be any of them:
- if preferred dividends = $4,800,000, then EPS = $0.40 (option A)
- if preferred dividends = $720,000, then EPS = $1.76 (option B)
- if preferred dividends = $0, then EPS = $2 (option D)
EPS = (net income - preferred dividends) / outstanding shares = ($6,000,000 - preferred dividends) / 3,000,000 shares
The Price/Earnings ratio is approximately:
- if EPS = $0.40, then PE ratio = 12.5 (option D)
- if EPS = $1.76, then PE ratio = 2.84 (option C)
- if EPS = $2, then PE ratio = 2.5 (option B)
Price/earnings (PE) ratio = share price / EPS = $5 / EPS
EPS cannot be $1.80, since PE ratio = 2.78 and that is not an option.
Some companies have a higher share price for the same level of earnings. Why?
Some stocks like Amazon have a very low EPS, form any years its EPS was very low bu its stock price kept rising. The stock price is based mostly on potential future earnings, not current earnings. A company that is being liquidated might have a high EPS, but a very low stock price since it will stop operating soon.
The answer is product line length
The product line length will determine the variety of choice available for customers when they're selecting the products from the company.
Larger product line length means that the company could serve a more diverse group of consumer base
Answer:
The maximum that should be paid for a share of this stock today is $13.53.
Explanation:
The price of a company's stock which pays a constant dividend through out can be calculated using the zero growth model of the Dividend discount model (DDM). The formula for price of the stock today under DDM's zero growth model is,
P0 = D / r
P0 = 1.84 / 0.136
P0 = $13.529 rounded off to $13.53
