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777dan777 [17]
3 years ago
7

Assume that Burger Queen Inc. hired you as a consultant to help estimate its cost of capital. You have obtained the following da

ta: D0 = $0.80; P0 = $26.00; and g = 6.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? 9.26% 9.14% 8.87% 8.54% 8.48%
Business
1 answer:
Anna35 [415]3 years ago
8 0

Answer:

The cost of equity capital is 9.26%

Explanation:

Using the DCF approach we usually calculate the price of stock or fair value of stock at a certain period in time based on the dividends the company is expected to pay. If the price today is provided then we can calculate the missing figure if any when other variables are provided.

The formula for DCF with constant growth model is,

P0 = D0*(1+g) / r - g

Where r is the required rate of return.

26 = 0.8*(1+0.06) / r - 0.06

26 * (r-0.06) = 0.848

26r - 1.56 = 0.848

26r = 0.848 + 1.56

r = 2.408 / 26

r = 0.0926 or 9.26%

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Insurance companies negotiate discounts with hospitals under a PPO. Option A

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2 years ago
The basic economic cost of unemployment is forgone ______. Multiple choice question. inputs output supply labor
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1 year ago
The ability to read, understand, and analyze accounting reports and financial statements is critical in understanding ______.
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Explanation:

7 0
2 years ago
Alan and Desmond have set up a law business in a high–priced office. Which type of business do they have?
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Paulina Lesky is 27 years old and has accumulated $7,500 in her self-directed defined contribution pension plan. Each year she c
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Answer:

The answer is "Option D".

Explanation:

The amount accrued in the pension system until now = 7500

Danger or security account proportion = 20 \%

The percentage of the amount kept in a safe account (PV) = 7500\times 20\% = 1500\%

Number of investment years owned by (n)=63-27=36

Risk-free return rate I = 3\%

Combined total amount up to age 63 (formula for the current value) = Present \ value\times (1+i)^n

=1500\times (1+3\%)^{36}\\\\=4347.417492

The contribution is \$2000 a year and the employer corresponds with the same amount for the pension plan.

Total annual contribution = 2000+2000 = 4000

Risk-free or healthy account proportion= 20\%

Amount invested annually (P) = 4000\times 20\% = 800 \ (Risk \ free)

Annual deposit amount (n) for years=63-27 =36

Returns free of risk I = 3\%

An cumulative sum due to an annuity= P\times \frac{(((1+i)^n)-1)}{i}

=800\times \frac{(((1+3\%)^{36})-1)}{3\%}\\\\=50620.75541

Total amount accumulated in safe account = FV\  of \ PV + FV of annuity

=4347.417492+50620.75541\\\\=54968.1729\\\\=54968

6 0
3 years ago
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