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mestny [16]
3 years ago
11

ABC Inc. just paid a dividend of $1.00 this year. The stock price is $15.43 currently. The market risk premium is 15% and the ri

sk-free rate is 6%. What will the price of ABC's stock be if the dividend growth increases by 25%?
Business
1 answer:
mariarad [96]3 years ago
4 0

Answer:

Price lowers and becomes negative or -5.37 dollars

Explanation:

Market risk premium's formula could be written as dividends/price + dividend's growth rate. Therefore, we dividend growth rate according to the current price and dividend level equal to market risk premium - dividends/price or 0.15 - 1/15.43 = 0.086 or 8.6%. If the dividend growth rate rises by 25% than new one is 33.6%. Price is equal to dividends/market risk premium - dividend growth rate or in this case 1/0.15-0.336 or 1/-0.186 or -5.37 dollars. If the price is negative that would mean that any future selling of the stock would mean that ABC would have to pay in order to sell it.

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Answer:

Waterways Corporation

If Waterways begins mass-producing its special-order sprinklers, its net operating income would almost double, increasing by $680,202.

Explanation:

a) Data and Calculations:

Increase in variable costs per unit = $0.70

Increase in number of sprinklers sold = 10%

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Current sales = 481,000 sprinkler units

Selling price = $25.20

New selling price = $25.40 ($25.20 + $0.20)

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Income Statements                          Normal    Mass Production

Sales revenue                              $12,121,200   $13,439,140

Variable manufacturing costs       $5,811,160     $6,181,530

Variable selling and admin. costs 2,673,680      2,941,048

Total variable costs                     $8,484,840    $9,122,578

Contribution margin                   $3,636,360    $4,316,562

Fixed costs:

Manufacturing costs                  $2,155,660    $2,155,660

Selling and administrative costs     798,370         798,370

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Net operating income                  $682,330    $1,362,532

Increase in net operating income = $680,202 ($1,362,532 - $682,330)

3 0
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Answer:

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Explanation:

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Present value can be calculated using a financial calculator

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To find the PV using a financial calculator:

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2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

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