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bezimeni [28]
3 years ago
6

Juggernaut Satellite Corporation earned $18.5 million for the fiscal year ending yesterday. The firm also paid out 40 percent of

its earnings as dividends yesterday. The firm will continue to pay out 40 percent of its earnings as annual, end-of-year dividends. The remaining 60 percent of earnings is retained by the company for use in projects. The company has 2 million shares of common stock outstanding. The current stock price is $80. The historical return on equity (ROE) of 14 percent is expected to continue in the future.
What is the required rate of return on the stock?
Business
1 answer:
Stella [2.4K]3 years ago
6 0

Answer:

13.41%

Explanation:

Last Year:  Earnings = $18,500,000

Shares Outstanding = 2,000,000

Earnings per share = Earnings / Shares Outstanding

= $18,500,000 / 2,000,000

= $9.25

Dividend per share, D0 = Earnings per share * Payout Ratio

Dividend per share, D0 = $9.25 * 40%

Dividend per share, D0 = $3.70

Retention Ratio  = 60%

Return on Equity = 14%

Growth Rate, g = Return on Equity  * Retention ratio

Growth Rate, g = 14% * 0.60

Growth Rate, g = 8.40%

Current Price, P0 = $80.00

Next Year:  Dividend per share, D1 = D0 * (1 + g)

Dividend per share, D1 = $3.70 * (1 + 8.40%)

Dividend per share, D1 = $3.70 * 1.084

Dividend per share, D1 = $4.0108

Required Rate of Return = D1 / P0 + g

= $4.0108 / $80.00 + 0.0840

= 0.0501 + 0.0840

= 0.1341

= 13.41%

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<u>Explanation:</u>

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6 0
3 years ago
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Answer:

Make; $72,000

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7 0
2 years ago
Read 2 more answers
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ale4655 [162]

Answer:

The internal control weakness includes:

1. The credit department receives incoming cash from the customers.

2. A credit department can pocket cash received from a customer and copies all remittance slips for the controller, then destroy the remittance slip.

3. The credit department can then write off customer's account as uncollectible, and the company will stop pursuing collection from the customers

Explanation:

To begin, it is important to understand the concept of Internal Control. Internal control can be generally understood as the procedures determined to ensure organization's objectives in efficiency and effectiveness, reliable financial reporting and compliance with existing organization's rules and regulations.

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To avoid and prevent this, a company should have a cash go to a clocked box at the bank. With this, the weaknesses emanating from physical cash handling by the credit department will be eliminated.

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6 0
3 years ago
You are the chief financial officer​ (CFO) of Gaga​ Enterprises, an edgy fashion design firm. Your firm needs $ 19 million to ex
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Answer:

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When raising capital using financial markets it is more expensive because the company will need to give out ownership rights in the company when they sell shares.

However when financial institutions provide the capital, there is a lower cost per dollar raised compared to sale of shares.

Also financial institutions act as financial advisors to their clients. So they will provide expertise in the acquisition of funds.

3 0
2 years ago
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Answer:

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Explanation:

Please see attached detailed solution to the above questions and answers.

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