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pantera1 [17]
3 years ago
8

Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 20%, and it will mai

ntain a plowback ratio of 0.30. Its projected earnings are $2 per share. Investors expect a 14% rate of return on the stock.
a.

At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.)


Price $

P/E ratio

b.

What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
1 answer:
Pachacha [2.7K]3 years ago
5 0

Answer:

Explanation:

a.)

First, find the growth rate using the ROE and the retention rate;

<em>g = ROE + retention rate</em>

g = 0.20 * 0.30

g = 0.06 or 6%

Next, find price using Dividend discount model (DDM);

<em>Price = Div/ (r-g)</em>

where Div = next year's dividend

r = required return

g = growth rate ,

Div = earnings * (1- plowback rate)

Div = $2* 0.70 = $1.4

Next, plug in the numbers to the formula above;

Price = 1.4/ (0.14 - 0.06)

Price = $17.50

Price earnings ratio; PE = Price/ earnings per share

PE = 17.50/ 2 = 8.75

b.) Present value of growth opportunities (PVGO)

Use PVGO formula to find the answer. It is as follows;

PVGO = Price - (E/r)

whereby, E= earnings per share = $2

r = investors required rate of return = 14%

Price = $17.50

PVGO = 17.50 + (2/0.14)

= 17.50 + 14.2857

= 31.7857

Therefore, Present value of growth opportunities is $31.79

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saveliy_v [14]
Had to look for the rest of the details and here is my answer.

Based on the given table of data attached to this question, the best estimate for Korey to quote as expected profits in the next year for his business plan next year would be <span>$19,386.97. Here is the given information of his net year profits.
</span>Year
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4 0
3 years ago
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The amount of net income shown on a multi-step income statement will differ from the amount of net income shown on a single-step
Stels [109]

Answer:

(B) False

Explanation:

As we know that

Net income = Total revenues - total expenses

The main difference between the single - step income statement and the multi-step income statement  due to classifications

In the single - step income statement, we normally

Revenues

Total revenues (A)

Expenses

Total expenses (B)

Net income (A-B)

while in multi-step income statement,

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General and administrative expenses

Depreciation expense -

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3 0
3 years ago
QUESTION 20 Zhang Industries sells a product for $700. Unit sales for May were 400 and each month's sales are expected to exceed
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Answer:

<u>$8,768</u>

Explanation:

<em>Sales for June will be</em> = $700 x 400 + $700 x 400 x 0.03 =

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<em>Projected selling expense</em> = $3000 + $288400 * 0.02 = $3000 + $5768

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6 0
3 years ago
Suppose from the first step of candy bar manufacture (formation of nougat) to the final step (packaging) each candy bar spends e
noname [10]

Answer:

25,000

Explanation:

Given that,

Time taken from first step to final step, cycle time = 1.25 hours

Demand for candy bars = 20,000

Throughput time = 20,000 candy bars per hour

Candies in process is work in progress:

= cycle time × Throughput time

= 1.25 hours × 20,000 candy bars per hour

= 25,000

Therefore,

25,000 candy bars are in process, on average.

4 0
3 years ago
What is a type of tort?
fomenos

Answer:

There are 3 main types of tort; intentional tort, negligence tort and strict liability

Explanation:

By definition, a  tort is a civil offense against another person. The victim who suffers in that offense can sue for damages, get represented by a lawyer  and receive a compensation. There are 3 main types of tort; intentional tort, negligence tort and strict liability. Tort laws are followed when making a decision whether to hold a person legally responsible for the breach against another, and the type of compensation the injured party receives.An intentional tort for example is a civil offense committed when a person engages in intentional conduct that results in damages to another.

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