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Andrews [41]
4 years ago
14

Takeover target is run by entrenched management that insists on reinvesting 60% of its earnings in projects that provide a ROE o

f 10%, despite the fact that the firm’s capitalization rate is r=15%. The firm’s year-end dividend will be $2 per share, paid out of earning of $5 per share. At what price will the stock sell? What is the present value of growth opportunities (PVGO)? Why such a firm be a takeover target for another firm?
Business
1 answer:
vfiekz [6]4 years ago
4 0

Answer:

Growth = ROE * Retention ratio

Growth = 10% * 60%

Growth = 6%

Price of Stock = Dividend / (Capitalization Rate - Growth)

Price of Stock = 2/(15%-6%)

Price of Stock = 2 / 0.09

Price of Stock = 22.22

The stock will sell at per $22.22

PVGO = Stock Price - Earnings per share / Cost of Equity

PVGO = 22.22 - 5 / 15%

PVGO = 22.22 - 5 / 0.15

PVGO = 22.22 - 33.33

PVGO = -$11.11

Conclusion: Since Present Value of Growth Opportunities (PVGO) is negative, the ROE will decrease and share price will fall. So the investor can takeover the firm at lower price in future .

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Alternative price indexes
cluponka [151]

Answer:

-value of all goods and services produced in the economy this year

-this year's prices

-value of all goods and services produced in the economy this year

-the base year's prices

-bought by consumers

-the first scenario would have effect on the GDP deflator

-the second scenario would have effect on the GDP deflator

Explanation:

The GDP deflator is used in measuring inflation in the economy by measuring changes in prices of goods in the economy. It is used together with other indices such as consumer price index in arriving at a more accurate or balanced measurement of inflation I'm the economy. The GDP deflator would be affected above because it is more comprehensive in it's calculation or measurement as it doesn't take into account only a basket of goods and services like the Consumer price index does

6 0
4 years ago
Trade adjustment assistance:_________.a. provides financial assistance to all unemployed workers in the United Statesb. guarante
Butoxors [25]

Answer:

The correct answer is the option B: guarantees jobs for all workers displaced by imports or plant relocations.

Explanation:

To begin with, the name of <em>"Trade Adjustment Assistance"</em> or TAA refers to a federal program from the United States that establish that its government must act in the situations necessary in order to reduce the damage cause by imports that are felt by certain sectors of the U. S. economy. Moreover, this program's structure features four components and one of them is the program for workers in which is established that the TAA provides a variety of reemployment services to those workers who were displaced or lost their jobs due to the increase of the imports or the relocation of their work plants.

3 0
4 years ago
Peter, who works at a go-kart manufacturing company, parts for karts co., became aware after talking with co-workers that he was
Alik [6]

Answer: The arbitrator displayed bias and exceeded her authority.

Explanation:

There is need for integrity and fairness when carrying out a job especially avoiding bias. It is also out of place and being unprofessional for an arbitrator or human resource to discriminate in decisions as regards employment; placing some on a better pay and position while another is not especially when they have the same criteria and experience for the job. Doing this is unethical and an exceed of authority.

3 0
3 years ago
An issuer has filed a registration statement in the state proposing to offer 500,000 shares in a combined primary and secondary
sweet-ann [11.9K]

Answer:

b. 300,000 shares being sold is an issuer transaction and the 200,000 shares being sold is a non-issuer transaction.

Explanation:

A non-issuer transaction is a transaction that does not directly benefit an issuer or it was not directly executed to benefit an issuer.

According to the Uniform State Law, an entity involved in the sales of certificates of interest, leases, mining titles among others is officially exempted from being labelled as an issuer. Hence, the entity (officers of the firm) in the question are non-issuer brokers.

Specifically, when the sales of stock are carried out by someone or an individual who is not a registered stockbroker, that individual officially becomes what is called 'a non-issuer broker-dealer'. The implication is that such a transaction is to be exempted from the registration requirements of the Security Exchange Commission.

In this question, since the issuer newly issued 300,000 shares while the remaining 200,000 in the proposed combination was offered by Officers of the firm - non-issuer broker-dealers. The Law states that it must be separated to show that 300,000 shares are sold in an issuer transaction (Primary) directly involving an official issuer while 200,000 shares are sold in a non-issuer transaction (Secondary).

3 0
4 years ago
Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes
blondinia [14]

Answer:

He shouldn't invest in the machine.

Explanation:

Giving the following information:

Cash flow= $1,000

Initial investment= $12,000

Discount rate= 9.5% annual.

To determine whether it is convenient or not to make the machine, we need to calculate the net present value (NPV). If the NPV is positive, the machine should be made.

NPV= -Io + ∑(Cf/i)

NPV= -12,000 + (1,000/0.095)= -1,473.68

He shouldn't invest in the machine.

3 0
3 years ago
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