Ask question

Ask question

All categories

4 years ago

10

You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $1.50 a share at the end

of the year (D1 = $1.50) and has a beta of 0.9. The risk-free rate is 3.2%, and the market risk premium is 4.5%. Justus currently sells for $40.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Round your answer to two decimal places. Do not round your intermediate calculation

1 answer:

kkurt [141]4 years ago

5 0

Answer:

44.35

Explanation:

The stock will increase the grow rate of the company. We need to solve this.

The grow rate will be determinate using the Gordon dividend grow model

$\frac{divends}{return-growth} = Intrinsic \: Value$

we clear for g

$return - \frac{divends}{stock} = grow$

to find the return we use CAPM

$Ke= r_f + \beta (r_m-r_f)$

risk free 0.032

market rate

premium market = (market rate - risk free) = 0.045

beta(non diversifiable risk) = 0.9

$Ke= 0.032 + 0.9 (0.045)$

Ke 0.07250

this will be the return we use in the formula for grow

g = 0.0725 - 1.5/40 = 0.03500

At this rate our dividends will grow and also our share price

the stock in 3 years will be the current price capitalized with the grow rate

$Stock \: (1+ grow)^{time} = Stock_{3years}$

Stock 40.00

time 3.00

rate 0.035

$40 \: (1+ 0.035)^{3} = Stock_{3years}$

Futue value in 3 years = 44.35

You might be interested in

CalPERS, the California Public Employees Retirement System, manages over 240 billion dollars in assets. As an example of shared

Sphinxa [80]

Answer:

The correct option is true

Explanation:

Shared activism refers to the use of direct action in achieving a goal as in the case of people refusing to leave a house marked for demolition in order to protect the house from being demolished.

CalPERS as a pension fund manager coupled with being a major shareholder in many of the firms where it holds investment has just employed the strategy of direct intervention known as shared activism in order that the value of its portfolio is optimized.

5 0

3 years ago

There would be other changes, too. The "cola wars" were escalating [in the 50s and 60s], and there was a new, all powerful weapo

Tresset [83]

Answer:

The correct answer is: television.

Explanation:

The "Cola Wars" refers to the increasing competition between worldwide known soft drinks Coca-Cola and PepsiCo during the 50s and 60s. Those decades were characterized by rapid changes in the world and the soda business was not left behind. In those years, a powerful source for marketing was introduced: the television. This boosted propaganda for the drinks of the two companies.

7 0

3 years ago

Suppose you have $850 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. Ho

olganol [36]

Answer:

FV= $772

Explanation:

Giving the following information:

Initial investment (PV)= $850

Interest rate (i)= 3.5% = 0.035

Number of periods (n)= 5 years

<u>To calculate the future value (FV), we need to use the following formula:</u>

FV= PV*(1+i)^n

FV= 650*(1.035^5)

FV= $772

8 0

3 years ago

A company had total sales of $980,000, net sales of $955,800 and an average accounts receivable of $82,500. Its accounts receiva

Alenkinab [10]

Answer:

Accounts receivable turnover = 11.58

Explanation:

The total sales of the company = $980000

Net sales of the company = $955800

Average account receivable = $82500

We have total sales, net sales, and average accounts receivable. Here, we are required to find the account turnover.

Use the below formula to find the account turnover:

Accounts receivable turnover = Net sales / average accounts receivable

Now insert the values:

Accounts receivable turnover = 955800 / 82500 = 11.58

5 0

3 years ago

Ceres corporation acquired a mineral mine for $6,000,000 of which $600,000 was ascribed to land value after the mineral has been

myrzilka [38]

Answer:

$11,880,000

Explanation:

Depletion is an estimated cost of a natural resource that is extracted. This resource is expensed as the extraction is made.

As per given data

Value of Rights = $60,000,000

Land Value = $600,000

As we know land does not depreciate or depleted.

Depletion Value = $60,000,000 - $600,000 = 59,400,000

Estimated resources = 9 million units

Resources extracted in the period = 1.8 million units

Depletion expense is based on ratio of the amount of extraction in period to the total expected resource.

Depletion Expenses = $59,400,000 x 1.8 million units / 9 million units = $11,880,000

8 0

4 years ago

Read 2 more answers