1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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 .

You might be interested in
A company uses the weighted average method for inventory costing. During a period, Department B finished and transferred 54,000
kolbaska11 [484]

Answer:

Equivalent Units = 61,200

Explanation:

The transferred units, means they complete their process, so move out and count as 100%

The ending WIP will be compute for their completion percent.

54,000 Transferred out

12,000 x 60% 7,200 equivalent

Equivalent Units = 61,200

3 0
3 years ago
This occurs when a government spends more money than it takes in.
BARSIC [14]
This is called deficit
8 0
3 years ago
Assume your organization is experiencing an intruder attack. You have an intrusion detection system (IDS) set up. Which of the f
Tresset [83]

Answer:

a.

Explanation:

Based on the information provided within the question it can be said that the first event to occur is that the network router sends traffic to the firewall as well as to the IDS. This is because the information entering your network has to pass through the router which determines which devices connect to the network receive this information. Since you have an IDS set up then the information would pass through the IDS before reaching your device, which if the IDS detects it as suspicious traffic it will warn the firewall.

3 0
4 years ago
Jamie and Maria invested all of their savings in a small pizzeria they opened outside the University of Western Kentucky. They o
kodGreya [7K]

Answer: Sell their personal assets

Explanation: In the given case, James and Maria were the owners of a firm which has a partnership structure and not the company structure. As per the law, the owners and the firm in a partnership structure would not be considered as two separate legal entities.

In case of any default or liquidation , the personal assets of the owners of the firm could be taken into consideration for repayments of debt.

Hence Maria and Jamie can sell their assets to repay $37,500.

4 0
3 years ago
A misconception is a mistaken idea or thought. True or False
yanalaym [24]
True............................
3 0
3 years ago
Read 2 more answers
Other questions:
  • Farmer Brown grows Number 1 red corn and would like to hedge the value of the coming harvest. However, the futures contract is t
    11·1 answer
  • Mart, Inc., is a public company whose shares are traded in the over-the-counter market. At December 31, Year 2, Mart had 6 milli
    15·1 answer
  • The total cost per unit is a combination of which types of costs?
    14·2 answers
  • Which of the following strategies would increase a person's net pay per month but might result in a large amount of taxes owed l
    14·2 answers
  • Prior to working at a VITA/TCE site, ALL VITA/TCE volunteers (greeters, client facilitators, tax preparers, quality reviewers, e
    8·1 answer
  • Which kind of economics system does a capitalism have
    15·1 answer
  • Classic Products Company manufactures colonial style desks. Some of the company's data was misplaced. Use the following informat
    5·1 answer
  • increases government purchases of goods and services by $50 million. Also assume the absence of taxes, international trade, and
    8·1 answer
  • Tempest Enterprises began operations on January 1, 20x1, with all of its activities conducted from a single facility. The compan
    12·1 answer
  • Select the correct answer.
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!