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4vir4ik [10]
3 years ago
13

Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends.

However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 17% per year - during Years 4 and 5, but after Year 5, growth should be a constant 7% per year. If the required return on Computech is 16%, what is the value of the stock today
Business
1 answer:
sertanlavr [38]3 years ago
8 0

Answer:

$9.687

Explanation:

Given:

Year 3 dividend = $1.00

Year4&5 growth rate = 17%

Constant rate = 7%

Required return rate = 16%

Year 4 dividend wil be:

D4 = 1.00 * 1+growth rate

= 1.00 * (1+0.17)

= $1.17

Year 5 dividend=

D5 = $1.17 * (1+0.17)

= $1.3689

Value of stock after year 5 will be given as:

\frac{D5 * (1+growth rate)}{required return - growth rate}

= \frac{1.3689*(1+0.07)}{0.16-0.07}

= $16.2747

For the current value of stock, we have:

Cv= Fd* Pv of discounting factor

Where Cv = current value of stock

Fd = future dividend

Pv = Present value of discounting factor

Therefore,

C_v = \frac{1.00}{1.16^3} + \frac{1.17}{1.16^4} + \frac{1.3689}{1.16^5} + \frac{16.2746}{1.16^5}

=$9.6871382455

≈ $9.687

The value of stock today =

$9.687

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Miller Fruit wants to expand its citrus grove operations. The firm estimates that it needs $8.6 million to buy land and establis
sergeinik [125]

Answer:

2.072 rights

Explanation:

Amount needed to buy the land = $8.6 million = $8,600,000

stock outstanding = 540,000

Market price per share = $34.80

subscription price = $33 a share

Now,

Number shares to be issued = ( Amount needed ) ÷ ( subscription price )

= $8,600,000 ÷ $33

= 260606.06 shares

1 rights will be issued per stock

thus,

number of rights required for purchase

= ( stock outstanding ) ÷ ( Number shares to be issued  )

= 540,000 ÷ 260606.06

= 2.072 rights

3 0
3 years ago
Due to impending labor strife over planned layoffs in its Silicon Valley headquarters, a social networking company has decided t
Ivanshal [37]

Answer:

putting a halt on the layoffs

Explanation:

This strategy should begin by putting a halt on the layoffs. This should be top priority since the layoffs themselves are the main cause for the criticism that the company is receiving and this criticism is the sole reason as to why its market position and staff productivity has fallen drastically. People think the company is failing and the staff is scared that they will eventually be fired. By stopping layoffs and waiting for a market recovery you give other better options a chance to arise and more efficient strategies to take effect.

6 0
3 years ago
Economic policies that attempt to benefit the poor by taxing and spending are referred to as ________.
anygoal [31]

Answer:

Fiscal policy

Explanation:

Describes changes to government spending and revenue behavior in an effort to influence the economy. By adjusting its level of spending and tax revenue, the government can affect economic outcomes by either increasing or decreasing economic activity.

3 0
2 years ago
Consider the following information: Portfolio Expected Return Beta Risk-free 5 % 0 Market 11.2 1.0 A 9.2 1.9 a. Calculate the re
tatiyna

Answer:

The calculations are shown below:

Explanation:

The calculations are shown below:

a. The expected rate of return is  

Return = Risk free return + Beta × (Market return - risk free return)

= 5% + 1.9 ×  (11.20% - 5%)

= 5% + 11.78%

= 16.78%

b. Now the alpha is

Alpha = Actual rate of return - Expected rate of return

         = 9.2% - 16.78%

         = - 7.58%

c. No , the CAPM is not valid as the expected rate of return is more than the actual rate of return

6 0
3 years ago
The study of economics is primarily concerned with:
IgorC [24]
Choices/ The way goods and services are produced and provided to consumers, and to used by them.
5 0
2 years ago
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