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GarryVolchara [31]
3 years ago
8

Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year. Dividends are expected to grow a

t the rate of 7% per year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 19%. The stock of Todd Mountain Development Corporation has a beta of 0.60. Using the constant-growth DDM, the intrinsic value of the stock is _________. Multiple Choice
Business
1 answer:
Tatiana [17]3 years ago
7 0

Answer:

$60

Explanation:

r = return = Risk-free rate + [beta * (Portfolio expected return - Risk-free rate)] 0.04 + [0.60 * (0.19 − 0.04)] = 0.13

Intrinsic value = Next dividend / (r - Growth rate) = 3 / (0.13 - 0.08) = $60

Therefore, the intrinsic value of the stock of Todd Mountain Development Corporation is $60.

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Sarah purchased 75 sweaters from a wholesaler for $16 each. She wants the markup percentage to be 18 percent. How much will Sara
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2 years ago
Examples of services are _____.<br><br> dentists<br> childcare<br> newspapers<br> personal computers
motikmotik

Personal computers

Sentence:

Examples of services are personal computers.

6 0
3 years ago
When the balance of an equity account, like Capital Stock, increases, it means that the account has been: Multiple Choice Deposi
Soloha48 [4]

Answer:

Credited

Explanation:

Equity Account <em>increase</em> on the credit side and <em>decrease </em>on the debit side.

So, when the account increased, we say it has been credited. This means further stock has been issued to new or existing owners.

8 0
3 years ago
L Corporation produces and sells 15,300 units of Product X each month. The selling price of Product X is $23 per unit, and varia
Arlecino [84]

Answer:

<em><u>It would generate a financial disadvantage for 62,800</u></em>

Explanation:

\left[\begin{array}{cccc}-&continued&discontinued&differential\\Sales&351,900&0&-351,900\\Variable&-260,100&0&260,100\\Contribution&91,800&0&-91,800\\Fixed&-103,000&-74,000&29,000\\total&-11,200&-74,000&-62,800\\\end{array}\right]

It would generate a financial disadvantage for 62,800

Because the product, while is having a loss, their contribution cover is enought to cover at least the avoidable fixed cost.

5 0
2 years ago
Biden Resorts Company currently has 0.2 million common shares of stock outstanding and the stock has a beta of 2.2. It also has
frutty [35]

Answer:

Hence, the weighted average cost of capital is 15.87%.

Explanation:

We have to find current weights,  

Value of equity = Shares x Share price = 0.2 x 10 = $2 million  

Face Value of Bonds FV = $1 million

Semi annual coupon P = 1 x 8% / 2 = $0.04 million

Number of coupons remaining n = 5 x 2 = 10

Semi annual yield r = 13.65% / 2 = 6.825%

Value of Debt = Px [1 - (1 + r)-n] / r + FV / (1 + r)n

= 0.04 x [1 - (1 + 0.06825)-10] / 0.06825 + 1 / (1 + 0.06825)10

= $0.8 million

Total Value = 2 + 0.8 = $2.8 million

Weight of Debt = 0.8 / 2.8 = 28.57%

Weight of Equity = 2 / 2.8 = 71.45%

Amount of Debt to be raised = Weight of debt x Capital

= 0.2857 x 7.5

= $2.14 million

Since the amount of debt to be raised is less than $2.5 million, the yield will be 13.65%  

Cost of Equity = Risk Free Rate + Beta x (Market Return - Risk Free Rate)

= 3% + 2.2 x (10 - 3)

= 18.4%

The weighted average cost of capital:-  

WACC = Weight of Debt x Cost of Debt x (1 -Tax Rate) + Weight of Equity x Cost of Equity

= 0.2857 x 13.65% x (1 - 0.3) + 0.7145 x 18.4%

= 15.87%

8 0
3 years ago
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