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san4es73 [151]
3 years ago
12

Tropical Inc. has reported ROE of 0.07 and a dividend payout ratio of 0.6. Its expected earnings for the next year is $2.7 per s

hare, and the market capitalization rate is 0.15. What is Tropical's intrinsic value for today (t0)? Assume sustainable growth rate and constant growth DDM.
Business
2 answers:
kolbaska11 [484]3 years ago
8 0

Answer:

The Intrinsic value today is $13.28

Explanation:

Given ROE = 0.07, Payout ratio = 0.6, EPS  = $2.7, market cap = 0.15

MV = ?

Formula = D1/r-g

First need to find Dividends that are expected to be paid out

From what is given we will use the payout ratio formula

PR = DPS/EPS

0.6 = DPS/2.7

DPS/D1 = 0.6*2.7=$1.62

Also need to find g

g = ROE *retention ratio

    =0.07*(1-0.6)

    =0.028/2.8%

The market cap is rate that is commonly used as the approximation of the discount rate to calculate the present value of cash flows from a security

So sustituting to the formula

MV = 1.62/0.15-0.028

      =$13.28

Yanka [14]3 years ago
3 0

Answer:

Value per share today is $13.28

Explanation:

The sustainable growth rate can be calculated using the following formula,

Sustainable growth rate (g) = ROE * (1 - DividendPayout Ratio)

Where,

  • ROE is the return on equity
  • (1- dividend payout ratio) also known as retention ratio

Thus, g = 0.07 * (1-0.6) = 0.028 or 2.8%

The formula for price or intrinsic value per share is,

P0 or V = D1 / r-g

The earnings per share is Net income per share. Out of this net income, 60% will be paid out as dividends so dividend per share expected for next year is 2.7 * 0.6 = 1.62

Thus, value per share will be,

V = 1.62 / (0.15 - 0.028)   = $13.278 rounded off to 13.28

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Condensed balance sheet and income statement data for Jergan Corporation are presented here.
IgorLugansk [536]

Answer:

Jergen Corporation

                                             2019                2020

(1) Profit margin Ratios:           13%                10%

(2) Gross profit rate               39.2%             35.7%

(3) Asset turnover                   1.06                 1.02

(4) Earnings per share         $2.63              $1.80

(5) Price-earnings ratio =       3.2x                4.2x

(6) Payout ratio =                 62%                76%

(7) Debt to assets ratio =   32%                28%

Explanation:

a) Data and Calculations:

Jergan Corporation

Balance Sheets

December 31

                                                 2020        2019        2018

Cash                                     $ 29,300    $ 17,300    $ 17,000

Accounts receivable (net)      49,900       44,100       47,800

Other current assets             90,900      96,000      63,900

Investments                           55,200      70,200      45,600

Plant and equipment (net)  500,700    370,600    358,000

                                          $726,000 $598,200 $532,300

Current liabilities                 $84,800    $79,100    $70,300

Long-term debt                    145,700     85,900      50,800

Total debt                         $230,500  $165,000    $121,100

Common stock, $10 par     348,000   320,000     312,000

Retained earnings               147,500     113,200      99,200

                                         $726,000 $598,200 $532,300

Jergan Corporation

Income Statement

For the Years Ended December 31

                                                            2020           2019

Sales revenue                                $743,000    $606,900

Less: Sales returns and allowances 40,000        29,500

Net sales                                          703,000       577,400

Cost of goods sold                          427,400       371,500

Gross profit                                     275,600      205,900

Operating expenses

(including income taxes)                 184,210        148,160

Net income                                    $ 91,390      $ 57,740

                                                     2020       2019     2018

Market price of common stock  $8.50      $7.50   $7.00

                                               2020        2019        2018

Retained earnings               147,500       113,200     99,200

Net income                         $ 91,390    $ 57,740

Dividend paid                     $57,090     $43,740

Outstanding shares             34,800       32,000

Dividend per share              $1.64         $1.37

Average Assets:             $662,100        $565,250

                    ($726,000 + $598,200)/2  ($598,200 + $532,300)/2

a) Ratios:

                                      2019                                  2020

(1) Profit margin Ratios: 13% ($91,390/$703,000)  10% ($57,740/$577,400)

(2) Gross profit rate     39.2%                                35.7%

                ($275,600/$703,000)                          ($205,900/$577,400)

(3) Asset turnover          1.06                                 1.02

                 $703,000/$662,100                          $577,400/$565,250

(4) Earnings per share $2.63 ($ 91,390/34,800)   $1.80 ($57,740/32,000)

(5) Price-earnings ratio = 3.2 ($8.50/$2.63)     4.2 ($7.50/$1.80)

(6) Payout ratio =            62% ($1.64/$2.63)     76% ($1.37/$1.80)

(7) Debt to assets ratio =      32%                             28%

                                       ($230,500/$726,000)    ($165,000/$598,200)

     

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Seo-yeon is beginning to wonder if she has made the right decision about purchasing a new HP laptop after she sees a friend with
tino4ka555 [31]

Answer:

postpurchase evaluation phase

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3 years ago
An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting
Tresset [83]

Answer:

under activity-based costing the sum of all product costs does not equal the total costs of the company.

Explanation:

The method of an activity-based costing system can be used use to find the total cost of all the activities that are required to make a product. This system also helps to find out which overhead costs can be avoided.

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because under activity-based costing the sum of all product costs does not equal the total costs of the company.

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3 years ago
Bethesda Biosys issues an IPO on a best-efforts basis. The company's investment bank requires a spread of 18 percent of the sell
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Answer:

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Explanation:

a) Calculations:

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Note that the question did not provide the necessary information to make the final decision.

b) During the issue of securities, especially an IPO, underwriters, such as investment banks, pay an issuing company for the securities and then sell the securities to the public.  There is always a difference per share price that they are willing to pay the issuer and what they will collect from the investing public.  That difference is called the underwriting spread or simply the spread.

c) Best-Efforts Basis: According to investopedia.com, underwriting on best-effort basis is "an agreement between an underwriter and an issuer in which the underwriter agrees to place as much of an offering with investors as possible, but is not responsible for any portion of the offering it fails to sell."

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