Answer:
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Answer:
Will increase to $460,000
Explanation:
Palmer Inc. currently produces 110,000 units at the rate of $440,000
Next year they are expected to produce 115,000 units
Since the cost is variable, the total cost can be calculated as
(440,000/110,000) × 115,000
= 4×115,000
= $460,000
Hence the total cost is $460,000
Using the Gordon Growth Model (a.k.a. Dividend Discount Model), the intrinsic value of a stock can be calculated, exclusive of current market conditions. In this model, the value of the stock is equated to the present value of the stock's future dividends.
<span>Value of stock (P0) = D1 / (k - g)
</span>where
D1<span> = </span><span>expected annual </span>dividend<span> per share in the following year </span>
<span>k = the investor's discount rate or required </span>rate of return
g = the expected dividend growth rate
<u>From the problem:</u>
The value of stock is $10.80
D1 is $0.40
g is 0.08
k is unknown
Solution:
Rearranging the equation for Gordon Growth Model to solve for k:
k = (D1/P0) + g
Substituting the variables with the given values,
k = (0.40/10.80) + 0.08
k = 0.1170
In percent form, this is
0.1170 * 100% = 11.70%.
Thus, the total rate of return on the stock is 11.70%.
Answer:
Angela's income interest is $772,500
Explanation:
Income interest at 1st Semiannual duration
Semi annual interest = $51,500*6%*(6/12)= $154,500
Income interest at 2nd Semiannual duration
Note New Principal for 2nd year will be =$51,500+$154,500= $206,000
Semi annual interest = ($51,500+$154,500)*6%*(6/12)= $618,000
There fore Total income = $154,500+$618,000= $772,500
