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mihalych1998 [28]
3 years ago
14

Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expect

s earnings and dividends to grow at a rate of 22% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
Business
1 answer:
Ronch [10]3 years ago
4 0

This can be worked out as under:

rakhivasavada :

Required Rate of Return r(m) = r(f) + b r(p), where r(f) is the risk free rate and the r(p) is the risk premium and b is beta and therefore:

r(m) = 3.00 + 1.20 * 5.5 = 9.6%.

rakhivasavada :

Hence current price P(0),

= D1/(1+k) +D2/(1+k)^2 + D3/(1+k)^3 + D4/(1+k)^4 + P4/(1+k)^4

D1 = D0 * 1.25 = 1.25*1.25 = 1.25^2

D2 = 1.25D1 = 1.25^3

D3 = 1.25D2 = 1.25^4

D4 = 1.25D3 = 1.25^5

D5 = 1*D4 = 1.25^5 (g = 0, so (1+g) =1)

P4 = D5/k = 1.25^5/0.096

So, P(0)

= 1.25^2/1.096 +1.25^3/1.096^2 +1.25^4/1.096^3 +1.25^5/1.096^4 +1.25^5/(0.096*1.096^4)

= 29.05

rakhivasavada :

I am sure this would help...

rakhivasavada :

Rate this answer ONLY IF you are done with this and if this helps and satisfies you as this is the only way we get compensated for assisting you. You may use "CONTINUE CONVERSATION" to revert with additional queries if you have or if I have missed out on any aspect of your question.

Hope this helps...

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Ms. Aura is a psychic. The demand for her services is given by Q-2000 10P, where Q is the number of one-hour sessions per year a
PIT_PIT [208]

Answer:

a)

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b)

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c)

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Explanation:

It maximize profit at MR = MC

MR = 200 - 0.2Q

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<u></u>

<u>Profit: revenue - cost</u>

$175 x 250 session - $150 per session = 6,250

<em>At new functions:</em>

150 = 500-0.4Q

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<u>If cost changes:</u>

cost: 1000 + 20Q

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7 0
2 years ago
Long-term debt outstanding: $300,000 Current yield to maturity (rdebt): 8% Number of shares of common stock: 10,000 Price per sh
nadya68 [22]

Answer:

Cost of capital=11.18%

Explanation:

First We will calculate the Equity of firm:

Equity= Number of share* Book value per share

Equity= 10,000* $25

Equity= $250,000

Long-term debt=$300,000

Expected rate of return=15%=0.15

Current yield to maturity (rdebt)=8%=0.08.

Value of firm=Equity+Long-term debt

Value of firm= $250,000+$300,000

Value of firm= $550,000

Formula:

Cost\ of \ Capital=\frac{Equity}{Value\ of\ firm}* Rate\ of\ return+\frac{Debit}{Value\ of\ firm}* yield\ to\ maturity

Cost\ of\ Capital=\frac{\$250,000}{\$550,000}*0.15+\frac{\$300,000}{\$550,000}*0.08\\  Cost\ of\ Capital=0.1118

Cost of capital=11.18%

6 0
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Answer:

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Spencer will win the lawsuit and Sally is liable for negligence.

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She hired other workers to help her with the job, so she's liable to their actions and inactions.

Sally is operating under a working agreement (contract) and has already charged a fee of $10,000 so any punitive damages would be her responsibility.

Spencer was moving around and Glen threw some roofing shingles without any word of warning to people that might be in harm's way. So for Glenn's actions, Sally is liable for his negligence.

5 0
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