Answer:
See explanation section.
Explanation:
The correct journal to record this transaction is -
Cash Debit $40,000
Common stock Credit $40,000
Note: As Callie Taylor invests the amount in exchange for common stock, An asset (cash) will be increased, and equity (common stock) will be increased. An increase in asset means debit, while an increase in equity means credit.
Answer:
Do = $2.00
D1= Do(1+g)1 = $2(1+0.2)1 = $2.40
D2= Do(1+g)2 = $2(1+0.2)2 = $2.88
D3= Do(1+g)3 = $2(1+0.2)3 = $3.456
D4= Do(1+g)4 = $2(1+0.2)4 = $4.1472
D5= Do(1+g)5 = $2(1+0.2)5 = $4.97664
PHASE 1
V1 = D1/1+ke + D2/(1+ke)2 + D3/(1+ke)3 +D4/(1+ke)4 + D5/(1+ke)5
V1 = 2.40/(1+0.15) + 2.88/(1+0.15)2 + 3.456/(1+0.15)3 + 4.1472/(1+0.15)4 + 4.97664/(1+0.15)5
V1 = $2.0870 + $2.1777 + $2.2723 + $2.3712 + $2.4742
V1 = $11.3824
PHASE 2
V2 = DN(1+g)/ (Ke-g )(1+k e)n
V2 = $4.97664(1+0.02)/(0.15-0.02)(1+0.02)5
V2 = $5.0762/0.1435
V2 = $35.3742
Po = V1 + V2
Po = $11.3824 + $35.3742
Po = $46.76
Explanation: This is a typical question on valuation of shares with two growth rate regimes. In the first phase, the value of the share would be obtained by capitalizing the dividend for each year by the cost of equity of the company. The dividend for year 1 to year 5 was obtained by subjecting the current dividend paid(Do) to growth rate. The growth rate In the first regime was 20%.
In the second phase, the value of shares would be calculated by taking cognizance of the second growth rate of 2%. In this phase, the last dividend paid in year 5 would be discounted at the appropriate discount rate after it has been adjusted for growth.
It's a <span>partnership. I have to write more words but that's what that arrangement is.</span>
