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Reptile [31]
3 years ago
12

Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay divi

dends (D1) of $3.00 per share, and the current price of its common stock is $60 per share. The expected growth rate is 8 percent.
a. Compute the cost of retained earnings (Ke). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of retained earnings___%
b. If a $5 flotation cost is involved, compute the cost of new common stock (Kn). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Cost of new common stock ____%
Business
1 answer:
Vlad1618 [11]3 years ago
6 0

Answer:

a. Compute the cost of retained earnings (Ke)

$60 = $3 / (Ke - 8%)

Ke - 8% = $3 / $60 = 5%

Ke = 13%

b. If a $5 flotation cost is involved, compute the cost of new common stock (Kn).

$60 (1 - $5/$60) = $3 / (Kn - 8%)

$55 = $3 / (Kn - 8%)

Kn - 8% = $3 / $55 = 5.45%

Kn = 13.45%

Flotation costs reduce the amount of money that the company receives for every new stock that it issues, therefore, it increases the cost of new stocks.

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Rahls issues stock to investors for $20,000, and has $5,000 of net income in its first year of operations. During Year 2, Rahls
Eva8 [605]

Answer:

The balance in stockholders' equity at the end of year 2 is $31,000

Explanation:

For computing the balance in stockholder equity at the end of year 2, first, we have to compute the balance for year 1  which is shown below:

Year 1 equity balance = Issue of stock + Net income

                                     = $20,000 + $5,000

                                     = $25,000

Now, year 2 balance would equal to

= Year 1 balance + Net income - Dividend paid

= $25,000 + $10,000 - $4,000

= $31,000

Hence, the balance in stockholders' equity at the end of year 2 is $31,000

4 0
4 years ago
An investment with more liquidity would be ideal for
ollegr [7]

Answer:

An investment with more liquidity would be ideal for someone who knows they will nee cash in the near future.

Explanation:

More liquid assets are those that can be  turn into cash more quickly than those that  less liquid assets.

If one is thinking about investing in a  liquid asset, surely is because it will need the cash in the short run. On the contrary, we could invest in other financial instruments less liquid (typically those who offer higher yields and have  longer terms), because we are not going to need the money for the moment, and we want to take advantage of that to get a higher yields.

8 0
3 years ago
Henry Edwards was injured in an accident caused by another driver who did not have insurance. Henry's medical expenses would be
balu736 [363]

The correct answer is option D, uninsured motorists protection

In the uninsured motorists protection, an individual  gets medical insurance who has faced accident due to low liability of the driver (or any person driving the car) to meet the expenses of the accident as he was not having insurance


6 0
3 years ago
QS 9-9 Recording warranty repairs LO P4 On September 1, Home Store sells a mower (that costs $220) for $520 cash with a one-year
yKpoI14uk [10]

Answer and Explanation:

The journal entries are shown below:

On September 1

Cash $520

      Sales $520

(Being the sale is recorded)

On September 1

Cost of goods sold $220

    To  Merchandise inventory $220

(Being the cost is recorded)

On September 1

Warranty expense $41.6  ($520 × 8%)  

   To Estimated warranty liability  $41.60

(Being the warranty expense is recorded)

On July 24

Estimated warranty liability $36  

        To Repair parts inventory $36

(Being the estimated warranty liability is recorded)

6 0
3 years ago
Suppose the government wants to change the level of output. If the LM curve is horizontal, then
Feliz [49]

Answer:

  • a. monetary policy is completely ineffective, whereas fiscal policy is highly effective.
  • a. monetary policy is completely ineffective, whereas fiscal policy is highly effective.

Explanation:

When the LM curve is horizontal, a change in money supply will not impact interest rates which would make monetary supply completely ineffective because people will be able to keep borrowing regardless of the money supply level in the economy.

If the IS curve is vertical, it means that output is independent of interest rates. This would again render monetary supply completely ineffective as output will not change as a result of a change in money supply. Fiscal policy will still work however because it would lead to more output being created via the multiplier process.

7 0
3 years ago
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