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s344n2d4d5 [400]
2 years ago
13

Burton Corp. is growing quickly. Dividends are expected to grow at a rate of 28 percent for the next three years, with the growt

h rate falling off to a constant 7.4 percent thereafter. If the required return is 16 percent and the company just paid a dividend of $3.45, what is the current share price
Business
1 answer:
horrorfan [7]2 years ago
4 0

Answer:

current share price = $70.53

Explanation:

Share Price:

A share price is the amount it would cost to buy one share in a company.

Formula:

share price = future dividends * Present value of discount factor(16%, time period)

As the company just paid a dividend of $3.45 and dividends are expected to grow at a rate of 28 percent for the next three years so

Dividend for 1st year = (3.45*1.28) = $4.416

Dividend for 2nd year = (4.416*1.28) = $5.65248

Dividend for 3rd year = (5.65248*1.28) = $7.2351744

Now we need to calculate the value for 3rd year.

Formula:

Value after 3rd year = (Dividend for year 3*growth rate) / (required rate-growth rate)

Therefore by putting the values in the above formula, we get

Value after 3rd year = (7.2351744 * 1.074) / (0.16 - 0.074)

Value after 3rd year = $90.35555007

Therefore by putting the values in the share price formula, we get

current share price = 4.416 / 1.16 + 5.65248 / 1.16^2 + 7.2351744/1.16^3 + 90.35555007 / 1.16^3

current share price = $70.53

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There are more than 20 stores on the same street that specialize in selling the same quality and brand of wheat products. An ind
Umnica [9.8K]

Answer:

Pure competition

Explanation:

  • Pure competition is a market structure in which many competitors sell many similar products. Due to high competition, market prices will fall. Pure competition is also called full competition. Other characteristics of pure competition.
  • There are many buyers and many sellers for market information
  • There are no entry and exit barriers in the market
  • Companies sell homogeneous products
  • Firms cannot affect market value. Companies are price takers.
  • Production units are identical and operate independently.

3 0
2 years ago
Canton Corp. produces a part using an expensive proprietary machine that can only be leased. The leasing company offers two cont
Brut [27]

Answer:

Explanation:

a)

1. Unit rate lease

Unit Contribution margin = Unit Selling price – Unit Variable cost

= 40 - 24 =  $16

Break even point (units) = Fixed cost/Contribution margin per unit

= 200,000/16  = 12,500

2. Flat rate lease

Unit Contribution margin = Unit Selling price – Unit Variable cost

= 40 - 20  = $20

Break even point (units) = Fixed cost/Contribution margin per unit

= 260,000/20  = 13,000

b.)

Let at X units produced profit margin is same under both the lease options

40X - 24X - 200,000 = 40X - 20X - 260,000

16X - 200,000 = 20X - 260,000

4X = 60,000

X = 15,000

If 15,000 units are produced, profit margin will be same under both the lease options.

c)

1. Unit rate lease

Contribution margin income statement

Sales (20,000 x 40)  800,000

Variable cost (20,000 x 24)  - 480,000

Contribution margin  320,000

Fixed cost  - 200,000

Operating income  120,000

Operating leverage = Contribution margin/Operating income

= 320,000/120,000  = 2.67

2. Flat rate lease

Contribution margin income statement

Sales (20,000 x 40)  800,000

Variable cost (20,000 x 20)  - 400,000

Contribution margin  400,000

Fixed cost  - 260,000

Operating income  140,000

Operating leverage = Contribution margin/Operating income

= 400,000/140,000  = 2.86

d)

1. Unit rate lease

Margin of safety = Actual sales - Break even sales

= 20,000 x 40 - 12,500 x 40

= 800,000 - 500,000

= $300,000

Margin of safety (%) = Margin of safety/Actual sales

= 300,000/800,000  = 37.5%

2. Flat rate lease

Margin of safety = Actual sales - Break even sales

= 20,000 x 40 - 13,000 x 40

= 800,000 - 520,000

= $280,000

Margin of safety (%) = Margin of safety/Actual sales

= 280,000/800,000  

= 35%

5 0
3 years ago
An increase in the money supply will: Group of answer choices increase interest rates and increase the equilibrium GDP. lower in
Komok [63]

Answer:

Option B, lower interest rates and increase the equilibrium GDP.

Explanation:

Option B is correct because the increase in the money supply will reduce the interest rate and increase the real GDP or output on the country because the rise in the money supply will results in more money in the hand of people. Therefore, more investment and production will be done in the economy. Thus, a rise in the production of output in the economy will result in the rise of GDP

6 0
2 years ago
One of the reasons why cash flow analysis is popular is because ________.
konstantin123 [22]

Answer:

D

Explanation:

Cash flow is the flow of cash and cash equivalent in and and out of a business.  

there are three types of cash flows:  

1. Investing cash flow - It involves the use of long term cash. it is the cash flow generated from the purchase and sale of fixed asset e.g. Sale of plant assets.  

2. operating cash flow - it shows the net amount of cash generated from a company's normal business operation  

3. financing cash flow - it shows the net amount of funding a company receives over a given period e.g. issuance of common stock  

Reasons why cash flow analysis is popular

  1. Cash flows are less subject to manipulation when compared with net income
  2. Cash flow in often positive when net income is negative or zero
6 0
2 years ago
Jennifer has $400 more than brian has. if she were to give brian 20% of her money
denpristay [2]
If Jennifer has 400 dollar more than Brian has, if she gives Brian 20 % of her money she will have to giver Brian 80 dollars which comprises 20% of 400 dollars.
That is a simple calculation:  20/100 x 400 = 80
Question solved. 
3 0
3 years ago
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