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SCORPION-xisa [38]
3 years ago
10

Castles in the Sand generates a rate of return of 12% on its investments and maintains a plowback ratio of .40. Its earnings thi

s year will be $3 per share. Investors expect a 10% rate of return on the stock. a) Find the price and P/E ratio of the firm. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price $ P/E ratio b) Find the price and P/E ratio of the firm of the plowback ratio is reduced to .30. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price $ P/E ratio
Business
1 answer:
tangare [24]3 years ago
7 0

Answer:

(a) $34.61; 11.54

(b) $32.81; 10.94

Explanation:

(a) Stock Price = D ÷ (Ke – G)

Where,

D is dividend next year,

Ke is required rate of return on equity

G is growth rate

Growth rate = ROE × plow-back ratio

                    = 0.12 × 0.40

                    = 0.048 or 4.8%

Dividend = Current EPS × (1 - plow back ratio)

               = $3 × 0.6

               = $1.8

Stock Price:

= $1.8 ÷ (0.10 - 0.048)

= $34.61

P/E Ratio = Stock Price ÷ EPS

               = $34.61 ÷ $3

               = 11.54

(b) New growth rate = 0.12 × 0.30

                                  = 0.036 or 3.6%

Dividend = Current EPS × (1 - plow back ratio)

               = $3 × 0.7

               = $2.1

Stock Price = $2.1 ÷ (0.10 - 0.036)

                   = $32.81

P/E Ratio = Stock Price ÷ EPS

               = $32.81 ÷ $3

               = 10.94

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andreyandreev [35.5K]

Answer:

Explanation:

Given that:

a)

1$ = Can $1.12

It takes a value of 1 U.S dollar to have 1.12 Canadian dollars.  This signifies that the U.S dollar is worth more than Canadian dollars.

b)

Assuming that the absolute Purchasing Power Parity PPP holds,

Since 1$ = Can $1.12, the cost  in the United States of an Elkhead beer, if the price in Canada is Can$2.85 can be determined to be:

= \dfrac{2.85}{1.12}

= $2.545

c)

Yes, the U.S. dollar is selling at a premium relative to the Canadian dollar.

This is because we are being told that the spot exchange rate for the Canadian dollar is Can $1.12 & in six (6) months time the forward rate will be Can $1.14.

d)

The U.S dollar is expected to appreciate in value because it is trading at a premium in the forward market.

e)

Canada has higher interest rates. This determined by using the formula:

= \dfrac{(\dfrac{Fwd}{Spot }-1)}{n}

where; n= numbers of years = 6 month/12 month = 0.5 year

Then;

=\dfrac{(\dfrac{1.14}{1.12 }-1)}{0.5}

= \dfrac{(1.0178-1)}{0.5}

= \dfrac{(0.0178)}{0.5}

= 0.0356

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6 0
2 years ago
Aces, Inc., a manufacturer of tennis rackets, began operations this year. The company produced 6,000 rackets and sold 4,900. At
SVETLANKA909090 [29]

Answer:

$165,500

Explanation:

Given that,

Sales (4,900 × $90) = $ 441,000

Cost of goods sold (4,900 × $38) = 186,200

Gross margin = $ 254,800

Selling and administrative expenses = $75,000

Net income = $ 179,800

Production costs per tennis racket total = $38

Variable production cost = $25

Fixed production cost = $13

Units produced = 6,000

Contribution margin:

= Sales - Variable production costs

= $441,000 - (4,900 × 25)

= $441,000 - $122,500

= $318,500

Fixed costs = Fixed production costs + Selling and administrative expenses

                   = ($13 × 6,000) + $75,000

                   = $78,000 + $75,000

                   = $153,000

Net income under variable costing:

= Contribution margin - Fixed costs

= $318,500 - $153,000

= $165,500

8 0
3 years ago
Your company has compiled the following data on the small set of products that comprise the specialty repair parts division. Per
Flauer [41]

Answer : R11 & U44

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Considering the aforementioned data on the small set of products that comprise the specialty repair parts division. After performing ABC analysis on the data. I would suggest R11 and U44 for the firm keep the least control.

3 0
3 years ago
The chances of a risk event occurring as a project proceeds through its life cycle tend to?.
Sedbober [7]

The correct answer is Slowly dropped.

<h3>What is the life cycle of the risk management process?</h3>
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The chances of a risk event occurring as a project proceeds through its life cycle tend to:

The correct answer is Slowly dropped.

To learn more about risk management, refer to:

brainly.com/question/4678268

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7 0
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Answer: Licensing

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Two parties are involved in each licensing agreement: the licencor and the licencee. In this example, John is the licencor and the cereal manufacturer is the licencee.  Both of the parties sign the licensing agreement, which is active over a specified amount of time.

Licensing is not to be confused with <em>franchising</em>. It refers to a specific business model when the franchisee operates under the brand (logo and trademark) of the franchiser, but essentially keeps its independence branch-wise. Best examples are McDonald's and KFC.

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