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inna [77]
3 years ago
6

A firm is expected to generate earnings of $2.22 per share next year. The mean ratio of share price to expected earnings of comp

etitors in the same industry is 15. Based on this information, the valuation of the firm’s shares based on the price-earnings (PE) method is $_______.
Business
1 answer:
Alenkinab [10]3 years ago
4 0

Answer:

The valuation of the firm’s shares based on the price-earnings (PE) method is $33.3

Explanation:

The price-to -earning ratio is calculated by dividing the market value of price per share by the firm's earning per share.

Given that; earnings per share generated are $2.22

The mean ratio of share price to expected earnings =15

P/E =Share price/earning per share

15=share price/2.22

share price = $2.22*15 =$33.3

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Palm Cay, Inc, plans to purchase a new metal stamping machine for use in its manufacturing process. After contacting the appropr
Irina-Kira [14]

Answer:

They purchase the machine from Vendor A.

Explanation:

This can be determined using the following 4 steps:

Step 1: Calculation of total cost of buying from Vendor A

Amount paid at the time of delivery = $40,000

Since the $50,000 will be paid at the end of each year, the present value of 5 years annual payment can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

Present value of 5 years annual payment = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)

Where;

P = Monthly payment = $50,000

r = cost of funds = 8%, or 0.08

n = number of years = 5

Substitute the values into equation (1), we have:

Present value of 5 years annual payment = 50,000 * ((1 - (1 / (1 + 0.08))^5) / 0.08) = $199,635.50

Total cost of buying from Vendor A = Amount paid at the time of delivery + Present value of 5 years annual payment = $40,000 + $199,635.50 = $249,635.50

Step 2: Calculation of total cost of buying from Vendor B

Since the first $14,000 installment is due upon delivery, the present value of Forty- semi-annual payments can be calculated using the formula for calculating the present value of annuity due as follows:

Present value of Forty- semi-annual payments = P * ((1 - (1 / (1+r))^n) / r) * (1+r) .................................. (2)

Where ;

P = Semi-annual payment = $14,000

r = semi-annual cost of funds = Cost of funds / 2 = 8% / 2 = 4%, or 0.04

n = number of semiannuals = 40

Substituting the values into equation (2) above, we have:

Present value of Forty- semi-annual payments = $14,000 * ((1 - (1 / (1+0.04))^40) / 0.04) * (1+0.04) = $288,182.79

Therefre, we have:

Total cost of buying from Vendor B = Present value of Forty- semi-annual payments  = $288,182.79

Step 3: Calculation of total cost of buying from Vendor C

Note: See the attached excel file for the calculation of the total present value of the required year-end maintenance costs (in bold red color).

Full cash price = $225,000

Total present value of the required year-end maintenance costs = $52,946.21

Total cost of buying from Vendor C = Full cash price + Total present value of the required year-end maintenance costs = $225,000 + $52,946.21 = $277,946.21

Step 4: Decision

Total cost of buying from Vendor A = $249,635.50

Total cost of buying from Vendor B = $288,182.79

Total cost of buying from Vendor C = $277,946.21

Since the Total cost of buying from Vendor A which is $249,635.50 is the lowest, they purchase the machine from Vendor A.

Download xlsx
8 0
3 years ago
As the demand for goods and services decreases, job growth
Alenkinab [10]
Job growth would decrease as well
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2 years ago
Read 2 more answers
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