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Ne4ueva [31]
3 years ago
5

Consider four different stocks, all of which have a required return of 14 percent and a most recent dividend of $3.50 per share.

Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent, and –6 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 12 percent growth rate thereafter. What is the dividend yield for each of these four stocks? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) What is the expected capital gains yield for each of these four stocks? (Leave no cells blank - be certain to enter "0" wherever required. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
nlexa [21]3 years ago
6 0

Answer:

Stock W   3.64%

Stock X  14.00%

Stock Y 21.28%

Stock Z   1.56%

Explanation:

We calculate the horizon value for each one. This will provide us with their price and with that, we solve for dividends yield

Stock W - Horizon Value

 3.50 x 1.10            3.85

-----------------  =    -----------  = 96.25

  0.14 - 0.10           0.04

Dividend yield: 3.50 / 96.25 = 0.036363636 = 3.64%

Stock X: g= 0

3.5 / 0.14 =  25

3.5 / 25 = 0.14

Stock Y g = -0.06

3.50 x (1 - 0.06) / (0.14 - (-0.06)) = 16.45

Dividend yield 3.50 / 16.45 = 0,212765957 = 21.28%

Stock Z

\left[\begin{array}{ccc}#&Dividends&Discounted\\&3.5&\\1&4.2&3.68\\2&5.04&3.88\\2&5.6448&217.17\\&TOTAL&224.73\\\end{array}\right]

First we solve for the next two dividends:

next year 3.50 x (1 + 20%) = 4.2

second year 4.20 x (1 + 20%) = 5.04

Here we solve for the horizon value of the constant grow:

5.04 x 1.12 / (0.14 - 0.12) = 282.24

now, we solve for the Present value of each one and add them together.

Getting a value of $224.73

We now solve for dividend yield: 3.50 / 224.73 = 0,01557 = 1.56%

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A stock has a required return of 11%; the risk-free rate is 7%; and the market risk premium is 4%.
kotegsom [21]

Answer:

The Beta is 1

The required return increases to 13%

Explanation:

The formula for required return is given below:

Required Return = Risk-Free Rate of Return + β(Market Return – Risk-Free Rate of Return)

required return is 11%

risk-free rate of return=7%

Beta is unknown

market return-risk free rate of return is market risk premium is 4%

11%=7%+beta(4%)

11%-7%=beta*4%

4%=beta*4%

beta=4%/4%

beta=1

If the market risk premium increased to 6%,required return is calculated thus:

required return=7%+1(6%)

required return =13%

This implies that the riskier the stock, the higher the market risk premium, the higher the required return to investors.

6 0
3 years ago
Goods Guys Foods established a trust fund that provides $125,000 in scholarships each year for needy students. The trust fund ea
antiseptic1488 [7]

Answer:

$1,724.138

Explanation:

Given:

Payment received each year = $125,000

Rate of return = 7.25 % = 0.0725

Present value = ?

Computation of Present value:

Present value = Payment received each year / Rate of return

= $125,000 / 0.0725

= $1724137.93

Present value = $1724137.93

Present value = $1,724,138 (approx)

Therefore, firm have to contribute  $1,724.138

5 0
3 years ago
The balance in the prepaid insurance account before adjustment at the end of the year is $27,000. Journalize the adjusting entry
Radda [10]

Answer:

(A)  Debit Insurance expense $20,250

     Credit Prepaid insurance $20,250

     Being entries to recognize insurance amortization expense for the year.

(B)  Debit Insurance expense $20,250

     Credit Prepaid insurance $20,250

     Being entries to recognize insurance amortization expense for the year.

Explanation:

Prepaid insurance account before adjustment = $27,000

(A) the amount of insurance expired during the year is $20,250

To account  for the expired amount,

Debit Insurance expense $20,250

Credit Prepaid insurance $20,250

Being entries to recognize insurance amortization expense for the year.

(B) the amount of unexpired insurance applicable to future periods is $6,750

Amount expired = $27,000 - $6,750

                           = $20,250

To account  for the expired amount such that the amount of unexpired insurance applicable to future periods is $6,750,

Debit Insurance expense $20,250

Credit Prepaid insurance $20,250

Being entries to recognize insurance amortization expense for the year.

4 0
3 years ago
Western Wear Clothing issues 3,000 shares of its $0.01 par value common stock to provide funds for further expansion. Assuming t
Komok [63]

Answer:

The journal entry for the issuance of the common stock is shown below:

Explanation:

Cash A/c.............................................Dr    $33,000

     Common Stock A/c........................Cr   $30

     Paid in Capital A/c...........................Cr   $32,970

Working Notes:

Cash = Number of shares × Issue Price

= 3,000 × $11

= $33,000

Common Stock = Number of Shares × Par Value

= 3,000 ×  $0.01

= $30

Paid in Capital = Cash - Common stock

= $33,000 - 30

= $32,970

3 0
3 years ago
The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact
lutik1710 [3]

Answer:

C. There are more substitutes for Cheerios than for cereals as a whole

Explanation:

Since in the question it is given that the demand for  Cheerios cereal is more price-elastic than the demand for cereals as a whole as because there are more substitutes for Cheerios as compare to cereals because in the case of substitute goods, there is a positive relationship between the price of good B and the demand of good A. It means if the price of good B decline. then the demand of good A is decreases and vice versa

6 0
3 years ago
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