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AURORKA [14]
3 years ago
14

Suppose you are trying to understand the effect that an increase in the price of grapes will have on the market for wine.

Business
1 answer:
NemiM [27]3 years ago
4 0

Answer:

The correct answer is option d.

Explanation:

The most effective model to understand the effect of change of a variable on other variable is by assuming other factors to be constant. This simplifies the model and helps in easily understanding the relationship between the two variables.  

Though the assumption of other things being constant does not apply in the real world, it is still used as otherwise change in other factors would complicate the model. If several factors change it would be difficult to understand the relationship between variables.  

Here, to study the effect of change in the price of grapes on the market for wine, it is necessary to assume other factors such as income, consumer preferences, etc to be constant.

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The retained earnings are calculated by adding net income to (or subtracting net losses from) the previous term's retained earnings and then subtracting any net dividend(s) paid to the shareholders. The figure is calculated at the end of each accounting period (quarterly/annually.)

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<em>1</em><em>. </em><em>Economies of scale.</em>

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A company currently pays a dividend of $2.8 per share (D0 = $2.8). It is estimated that the company's dividend will grow at a ra
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Intrinsic value: 53.41 dollars

Explanation:

First, we use the CAPM model to know the value of the stock

Ke= r_f + \beta (r_m-r_f)  

risk free 0.085

premium market =(market rate - risk free) = 0.045

beta(non diversifiable risk) 1.3

Ke= 0.085 + 1.3 (0.045)  

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Now we need to know the present value of the future dividends:

D0 = 2.8

D1 = D0 x (1+g) = 2.8 * 1.23 = 3.444

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The next dividends, which are at perpetuity will we solve using the dividned grow model:

\frac{divends}{return-growth} = Intrinsic \: Value

In this case dividends will be:

4.23612 x 1.07 = 4.5326484

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plug this into the Dividend grow model.

\frac{4.5326484}{0.1435 - 0.07} = Intrinsic \: Value

value of the dividends at perpetity: 61.6686857

FInally is important to note this values are calculate in their current year. We must bring them to present day using the present value of a lump sum:

\frac{Principal}{(1 + rate)^{time} } = PV

\frac{3.444}{(1 + 0.1435)^{1} } = PV

3.011805859

\frac{4.23612}{(1 + 0.1435)^{2} } = PV

3.239633762

\frac{61.6686857}{(1 + 0.1435)^{2}} = PV

47.16201531

We add them and get the value of the stock:

53.413455

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