A misconception is a misunderstanding.
1 answer:
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Answer: Option (B) is correct.
Explanation:
Given that,
High level of activity = 120,000 units
Low level of activity = 40,000 units
Utility costs = $60,000 in June
Utility costs = $156,000 in November
Variable cost per unit:
=
=
= $1.2 per unit
Fixed cost element:
= Total cost at high level - variable cost at high level
= $156,000 - $1.20 x 120,000 units
= $156,000 - $144,000
= $12,000
Utility cost for a month:
= Fixed cost per month + $1.20 variable cost per unit at 80,000 units
= $12,000 + $1.20 x 80,000 units
= $108,000
Answer and Explanation:
The computation is shown below:
a) Growth rate = ROE × retention ratio
= 23% × (1 - .40)
= 13.80%
Value of stock = D1 ÷ (k - g)
= 0.84 × (1 + .1380) ÷ (.16 - .1380)
= $43.45
b) Revised growth rate after year 2 = 16% × .50
= 8%
Value at T2 = D3 ÷ (k - g)
D3 = Earnings × (1 + G1)^2 × (1 + G2) × Payout ratio
= 2.1 × (1+.1380)^2 × (1+.08) × .50
= 1.47
Value at T2 = 1.47 ÷ (.16 - .08)
= $18.38
Value at T0 = Value at T2 ÷ (1 + r)^n
= 18.38 ÷ (1 + .16)^2
= 13.66
