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
stellarik [79]
3 years ago
15

National Advertising just paid a dividend of D 0 = $0.75 per share, and that dividend is expected to grow at a constant rate of

6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?
Business
1 answer:
DerKrebs [107]3 years ago
5 0

Answer:

$14.52

Explanation:

The calculations proceed as follows:

Step 1: Calculation of expected return

This is done by using the Capital Asset Pricing Model (CAPM) formula as follows:

ERi = Rf + βi(ERm - Rf) ........................................... (1)

Where:

ERi = expected return of investment = ?

Rf = risk-free rate  = 4.50% = 0.0450

ERm = market rate = 10.50% = 0.1050

βi  = beta of the investment  = 1.25

(ERm  - Rf) = market risk premium  = 0.1050 - 0.0450 = 0.060

​Substituting the values into equation (1), we have:

ERi = 0.0450 + 1.25(0.060) = 0.120 = 12%

Step 2: Calculation of current year dividend

D1 = Do × (1 + g) ........................................ (2)

Where;

D1 = current year dividend = ?

Do = last year dividend = $0.75

g = growth rate = 6.50% = 0.065

Substituting the values into equation (2), we have:

D1 = 0.75 × (1 + 0.065) = $0.79875

Step 3: Calculation of current stock price

The dividend growth model formula for calculating stock price is used as follows:

Stock price = D1 ÷ (ERi - g)

                   = $0.79875 ÷ (0.120 - 0.065)

                   =  14.5227272727273

Stock price = $14.52.

Therefore, the company's current stock price is $14.52.

You might be interested in
Which of the following is used to explain the process managers go through in determining the reasons for effective or ineffectiv
inessss [21]

Answer: Attribution theory.

Explanation:

Managers most times makes use of the Attribution theory when trying interpret employees behavior. The Attribution theory is a theory that studies individual and their behavior, what makes an individual either motivated or demoralized on a job.

8 0
2 years ago
Read 2 more answers
The latitude value of Toronto is 43.70 degrees, and the longitude value is 79.40 degrees. The latitude value of Melbourne is -37
olya-2409 [2.1K]
The right answer for the question that is being asked and shown above is that: "The two cities are degrees apart in latitude." <span>The latitude value of Toronto is 43.70 degrees, and the longitude value is 79.40 degrees.</span>
7 0
3 years ago
Crane Company is evaluating its Piquette division, an investment center. The division has a $66000 controllable margin and $4800
liberstina [14]

Answer:

$600,000

Explanation:

Data provided in the question:

Controllable margin = $66,000

Sales = $480,000

Return on investment = 10%

Now,

Return on investment  = Controllable Margin ÷ Average Operating Assets

or

10% = $60,000 ÷ Average Operating Assets

or

Average Operating Assets = 60000 ÷ 10%

or

Average Operating Assets = 60000 ÷ 0.01

or

Average Operating Assets = $600,000

8 0
3 years ago
Andre dickinson, owner of andre's fine wines, also owns a personal residence that costs $475,000. the market value of his reside
Orlov [11]
<span>the economic entity assumption</span>
6 0
3 years ago
Sandra is 19 years old and has her first job as an administrative assistant in a law firm. She wears very low-cut shirts, short
sashaice [31]

People might believe that shes trashy she must sleep around with alot of men she wants attention people give her nasty names because of the clothing she choses. Quick note: People will always judge you on how you look you can be the smartest person ever but what you wear is how they will judge you even if you say it will not bother you it will eventually catch up with you and start tearing you down little by little untill you have no confidence in your self no more thats the reality its nasty but its true

8 0
3 years ago
Read 2 more answers
Other questions:
  • ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrate how ABC Co. would record this tr
    13·1 answer
  • True or false: a database transaction is recorded only when a change is written to a database.
    10·1 answer
  • LO 6.1TyeDye Lights makes two products: Party and Holiday. It takes 80,900 direct labor hours to manufacture the Party Line and
    15·1 answer
  • On September 1, 2021, Middleton Corp. lends cash and accepts a $4,000 note receivable that offers 10% interest and is due in six
    14·2 answers
  • Mission Corp. borrowed $50,000 cash on April 1, 2016, and signed a one-year 12%, interest-bearing note payable. The interest and
    9·1 answer
  • Anthony Finley wishes to become a millionaire. His money market fund has a balance of $287,270 and has a guaranteed interest rat
    5·1 answer
  • Rolling Hills Golf Course is planning for the coming golfing season. Investors would like to earn a 10% return on the company's
    13·1 answer
  • Which of the following is NOT an incentive
    5·1 answer
  • What is the money that remains after taxes and other deductions are taken out called?
    10·2 answers
  • A stock has a beta of 1.3. The systematic risk of this stock is ____________ the stock market as a whole.
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!