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shutvik [7]
3 years ago
9

A firm pays a $11.80 dividend at the end of year one (D1), has a stock price of $145, and a constant growth rate (g) of 4 percen

t. Compute the required rate of return (Ke). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Business
1 answer:
lorasvet [3.4K]3 years ago
3 0

Answer:

The required rate of return is 12.13%

Explanation:

According to the DDM model, the formula for a price of a stock is

P=D1/R-G

D1= Year end dividend

P= Stock price

R= required rate of return

G= Growth rate of stock

SO we will input the values given to us in the question, in this formula.

145=11.80/(R-0.04)

145R - 5.8=11.80

145R= 17.6

R=17.6/145

R=0.121

R= 12.13%

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John hamilton borrowed $500,000 from stone creek bank to open a new restaurant called sauce-it-up. John transferred $450,000 of
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The appropriate reflection of the cash transactions between these reporting entities is as follows:

        John Hamilton       Sauce-it-up          Stone Creek Bank

Cash   +$500,000           $450,000             -$500,000

           -$450,000

Balance $50,000            $450,000             -$500,000

<h3>What is a reporting entity?</h3>

A reporting entity is an economic unit that publishes general purpose financial reports to enable users make and evaluate their decisions about the allocation of scarce resources.

Thus, John Hamilton's cash holding increased by $50,000 net.  The cash holding of Sauce-It-Up increased by $450,000 while the cash holding of Stone Creek Bank decreased by $500,000.

Learn more about cash flows of reporting entities at brainly.com/question/24179665

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2 years ago
If a egg need 5 mins to cook how many mins 7 eggs need to cook
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6 0
3 years ago
Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-ca
Semenov [28]

Answer:

a. Terrell's Optimal Capital Structure is 40:60. It means to obtain optimal capital structure in-order to increase value of firm, Terrell should finance 40% of its Assets through Debt and remaining through Common Equity.

b. The optimal Capital Structure is the point where company's WACC is minimized. So, 40:60 is the ratio where Terrell's WACC will be minimized.

Explanation:

The goal of Management is to increase Shareholders' wealth and not to generate profits because wealth is something that is for long-run whereas Profits are temporary. Management would accept projects having negative NPV if its goal is to maximize Profit.

Maximizing Shareholders' wealth means to increase the Share Price whereas Generating a higher EPS is Profit Maximization Strategy. So, you should look for that Capital Structure Point where the Company's Stock Price is Highest.

Thanks!

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The refusal of the US Senate to ratify the ITO's charter "doomed" the International Trade Organization (ITO).
alex41 [277]
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6 0
3 years ago
Read 2 more answers
FarCry Industries, a maker of telecommunications equipment, has 26 million shares of common stock outstanding, 1 million shares
Margaret [11]

Answer:

wP = 114.5 / 514.6   = 0.2225 or 22.25%

Explanation:

The WACC or weighted average cost of capital is the cost of a firm's capital structure. The capital structure of a firm can be made up of one or more of the following components namely debt, preferred stock and common equity. The WACC is normally calculated using the market value of these components. The formula for WACC is,

WACC = wD * rD * (1-tax rate)  +  wP * rP  +  wE * rE

Where,

  • wD, wP and wE represents the weight of debt, preferred stock and common equity in the capital structure based on the market value
  • rD, rP and rE are the cost of debt, preferred stock and common equity respectively.

To calculate the weight that should be assigned to the preferred stock in the calculation of WACC, we need to determine the market value of preferred stock and the market value of the capital structure.

Market Value - Debt = 10000 * 1000 * 1.01  =  $10.1 million

Market Value - Preferred stock = 1 * 114.50  = $114.5 million

Market Value - Common equity = 26 * 15  =  $390 million

Total MV of capital structure = 10.1 + 114.5 + 390  = $514.6

wP = 114.5 / 514.6   = 0.2225 or 22.25%

3 0
3 years ago
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