Answer:The cost of capital that will make both investments equal is 17.045%
Explanation:
Investment A
$1.5 million will be received in perpetuity we can there use perpetuity formula to Value investment A.
Value of Investment A = 1500 000/r
Investment B
$1.2 Million will be received in Investment B with a growth rate of 3% will then use Gordon's growth rate model to value investment B.
Value of investment B = (1200 000 x (1+0.03))/(r - 0.03)
Value of investment B = 1236000/(r - 0.03)
1500 000/r = 1236000/(r - 0.03)
1236000(r) = 1500000(r - 0.03)
(r - 0.03) = 1236000( r)/1500000
r - 0.03 = 0.824r
r - 0.824r = 0.03 = 0.176r = 0.03
r = 0.03/0.176 = 0.170454545
R = 17.045%
The cost of capital that will make both investments to be equal is 17.045%
D. Price ceiling
This is a government regulation that establishes a maximum price for a specific thing.
Answer:
Answer:
Growth rate (g) = n-1√(<u>Latest dividend)</u> - 1
Current dividend
= 4-1√($2.49/2.20) -1
= 3√(1.1318) -1
= 1.04 - 1
= 0.04 = 4%
Ke = Do<u>(1 + g) </u> + g
Po
Ke = $2.57(<u>1 + 0.04</u>) + 0.04
65
Ke = 0.04 + 0.04
Ke = 0.08 = 8%
Explanation:
In this case, we need to calculate the growth rate using the above formula. Then, the cost of equity will be calculated. Cost of equity is a function of current dividend paid subject to growth rate divided by current market price.
Explanation:
Answer:
The multiple choices are:
a. $200 Million
b. $50 Million
c. $1.4 Billion
d. $100 Million
The correct option is A,$200 million
Explanation:
The increase in cash recorded from the statement of cash flows prepared in the year plus the opening balance of cash at the beginning of the year gives the cash balance at the end of the year shown below:
Increase in cash in the year=cash flow from operations+cash flow from financing activities-cash flow used on investing activities
increase in cash in the year=$325+($500-$100)-$600=$125 million
cash at the end of the year=$125
+$75=$200 million
