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Mashutka [201]
3 years ago
15

XYZ Company has expected earnings of $3.00 for next year and usually retains 40 percent for future growth. Its dividends are exp

ected to grow at a rate of 10 percent indefinitely. If an investor has a required rate of return of 15%, what price would he be willing to pay for XYZ stock?a. $12.50 b. $25.00 c. $30.00 d. $40.00
Business
1 answer:
Verizon [17]3 years ago
6 0

Answer:

Price of stock  = $40

Explanation:

According to the dividend growth model, the price of a stock is the present value of expected dividend discounted at the required rate of return.

This is done as follows:

Price of a stock = D×(1+r)/(r-g)

D(1+g) - Dividend for next year = 100%-40%× $3 = $1.8

g- growth rate - 10%

r- required rate of return - 15%

Price of stock = 1.8× (1.1)/(0.15-0.1)

                    = $40

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Georgia [21]

Answer:

$1,200

Explanation:

Given that

Purchase of a customer delivery van = $50,000

discount rate = 20%

Present value of future cost savings = $51,200

Yield = 20%

Based on the above information, as per the net present value the initial cost of the equipment should not be more than the present value of cash inflows  i.e. $51,200

So the more than amount is

= $51,200 - $50,000

= $1,200

8 0
3 years ago
Which of the following is a characteristic of utility?
klasskru [66]

Answer:

It is synonymous with "usefulness".

It is subjective

4 0
3 years ago
Identify the major task that must be mastered in early adulthood, according to levinson.
Masteriza [31]
The answer to the question is shown below:

The two major task that must be mastered in early adulthood, according to Levinson are the following:
1. The developing of life structure, a stable life structure
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3 years ago
Give at least one disadvantage of incorporation and explain why it is a disadvantage.
Naya [18.7K]

Answer:

1. Lack of ownership

2. Higher taxation

3. Legalities and formalities

Explanation:

An incorporated company is one that has a separate legal entity from that of its owner and shareholders. Disadvantages of an incorporated company include:

  • <em>Lack of ownership</em>

An incorporated business is a separate entity from its owner. Hence, separate bank accounts would be required along with separate business identification since personal identification would not be sufficient. At the same time, personal funds must be kept separate from business funds. Mixture of the two is an offense against the law. Also, as shareholders are involved, they may have voting rights, hence, the owner will not have a complete say in all business activities.

  • <em>Higher taxation</em>

Incorporated companies are expected to pay higher taxes whilst others may have minimum taxable limits. The owner will have to pay income tax as well as corporate taxes. They will also accumulate other expenses such as accounts and legal fees whilst processing these complex taxation methods.

  • <em>Legalities and formalities</em>

Incorporating a business in itself requires complex procedures and a lot of paperwork. After this has been accomplished, the company is still expected to follow strict codes of conduct such as those provided by the Companies Act. This would include the way borrowings and lending occur, investments, dividend provisions, meetings and audits. They will also have to register documents under the Registrar of Companies.

5 0
3 years ago
Someone who is risk averse has a general dislike for risk and a preference for certainty. If risk aversion eists in the market,
jasenka [17]

Answer:

False

Explanation:

A low risk investment slightly increase over time whereas high risk investment  may loose or win a lot of money.

So, a person who is risk averse is likely to attract towards capital than preference over higher return.

6 0
3 years ago
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