1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
ValentinkaMS [17]
3 years ago
6

The risk-free rate of return is 8%, the expected rate of return on the market portfolio is 15%, and the stock of Xyrong Corporat

ion has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $10 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 20% per year on all reinvested earnings forever.
Business
1 answer:
koban [17]3 years ago
7 0

Answer:

Risk-free rate (Rf) = 8%

Return on market portfolio (Rm) = 15%

Beta (β) = 1.2

Ke = Rf + β(Rm - Rf)

Ke = 8 + 1.2(15 - 8)

Ke = 8 + 1.2(7)

Ke = 8 + 8.4

Ke = 16.40%

Earnings per share (EPS) = $10

Current dividend paid (Do) = 40% x $10 = $4

Retention rate (b) = &6/$10 x 100 = 60% = 0.6

ROE (r) = 20% = 0.2

Growth rate (g) = b x r

                         = 0.6 x 0.2

                         = 0.12 = 12%

Current market price (Po)

= Do<u>(1 + g) </u>  

        Ke - g

= $4<u>(1 + 0.12)</u>

     0.1640 - 0.12

= $4<u>(1.12)</u>

      0.044

= $101.82

             

Explanation:

First and foremost, we need to calculate the cost of equity based on capital asset pricing model. Then, we will determine the growth rate, which is a function of retention rate (b) and return on equity(r).

Finally, we will calculate the current market price, which is dividend paid, subject to growth, divided by the excess of cost of equity over growth rate.

You might be interested in
Growth of specialization in the kinds of jobs people hold __________. has slowed dramatically since the 1970s, along with the de
artcher [175]

Answer:

has continued right up to the present

Explanation:

Specialization refers to workers focusing on a single task and perfecting that task alone instead of doing various tasks at the same time. Growth of specialization in the kinds of jobs people hold has continued right up to the present. One of the reasons for this is that companies prefer individuals that are highly skilled on the specific task that they need done and that will be able to do it in the most efficient way possible.

3 0
3 years ago
Which is a tool used by the federal reserve in the conduct of monetary policy?
Hoochie [10]
There are three tools to achieve its monetary policy goals: the discount rate, reserve requirements, and open market operations
8 0
3 years ago
Over the past two years a cloud service consumers have made 24,531 attempts to invoke a cloud service's reporting capability. of
Slav-nsk [51]
The reliability rating of the cloud service is about <span>93.37%.</span>
5 0
3 years ago
The ratio that measures how much an investor is willing to pay for a dollar of earnings is known as a _____________ ratio.
zzz [600]

Answer:

A)Market value

Explanation:

The market value ratios can be regarded as the financial metrics that are engaged in evaluation of worth of stocks of the companies that trade publicly. The ratio helps the investors to know if the price of prevailing market share is in sync along with the performance of the company. It should be noted that The ratio that measures how much an investor is willing to pay for a dollar of earnings is known as a market value ratio.

4 0
2 years ago
Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5 per unit. Minor currently produces a
Maslowich
The company should accept the special order because it will get an additional profit of $4,000 ($12,500 - $7,500 - $1,000) for the special order. This additional profit amount can be acquired by separating the effect from the special order on each cost and sales of the company's business. The sales should increase by $12,500 ($5 x 2500 unit) amount if the job is taken and the variable cost should increase by $7,500 ($3 x 2500 unit). Lastly, the fixed cost should increase by $1,000 (the new machine).
3 0
3 years ago
Read 2 more answers
Other questions:
  • Blue Moose Home Builders’s quick ratio is ____, and its current ratio is _____; Blue Hamster Manufacturing Inc.’s quick ratio is
    14·1 answer
  • Nancy's union has negotiated a three-year wage contract that provides for a 2.4% increase indexed to inflation. The rates of inf
    13·1 answer
  • If a firm invests in continuous innovation and willingly cannibalizes its existing products with more advanced products, the fir
    9·1 answer
  • A comparative advantage is the ability of a country to produce a particular good or service at a lower ____________ than another
    5·1 answer
  • When maggie joined techno-nerds, inc., she automatically joined an employee team. team members each had base salaries, but they
    5·1 answer
  • Dollar store purchases merchandise for $1,500 on terms of 2/5, n/30, fob shipping point, invoice dated november 1. 5 dollar stor
    7·1 answer
  • ________ customer relationship management (CRM) systems help to create mass e-mail marketing campaigns wherein each consumer rec
    14·1 answer
  • Lashelle is reading an article about how her state became part of the United States. Which question would be best for her to ask
    5·1 answer
  • A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessi
    5·1 answer
  • Using the income statement for Times Mirror and Glass Co., compute the following ratios:
    5·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!