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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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Joe Donney operates a roller skating center. He has just received the monthly bank statement at August 31 from Citizens National
dlinn [17]

Answer:

Donney actually have $1,577 at August 31, 2014

Explanation:

Prepare a Bank reconciliation to determine the accuracy of the Cash Balance using the following steps

Step 1

<em>Update the Cash Book (Bank Column) Balance</em>

<u>Cash Book (Bank Column)</u>

Debit :

Balance as at August 31                     $1,620

Rent collection                                      $375

Total                                                    $1,995

Credit :

Service charge                                         $9

Dishonored Checks                              $137

Printing Charge                                      $20

Error : Understatement                        $252

Balance as per updated CB              $1,577

Total                                                    $1,995

Step 2

<em>Prepare a Bank Reconciliation Statement</em>

<u>Bank Reconciliation Statement as at August 31</u>

Balance at Bank as per updated Cash Book       $1,577

Add Unpresented Checks                                       $756

Less Lodgements not yet credited                     ($1,695)

Balance as per Bank Statement                             $638

Conclusion :

Now that we have reconciled the Updated Cash Balance of $1,577 to the Bank Statement we can safely say Donney actually has $1,577 cash at August 31, 2014.

3 0
3 years ago
Which of the following islare true using the specific, economic, definition
marissa [1.9K]

Answer:

II. A person is unemployed when they do not have a job, are able to work, and are actively looking for a job.

Explanation:

A person without a job must be actively looking for work to be counted as unemployed and willing/able to work. If not, then the person without a job is counted as being out of the labor force.

5 0
3 years ago
Justin, a real estate salesperson with City Brokerage, received a referral fee after referring a client to Mark, another real es
Ganezh [65]

Answer: Justin's sponsoring broker

Explanation:

From the question, we are informed that Justin, a real estate salesperson with City Brokerage, received a referral fee when he refered a client to Mark, who is another real estate salesperson with City Brokerage.

The person to pay Justin his referral fee will be Justin's sponsoring broker. It should be noted that when another agents gets a referral from an agent, the sponsoring broker is the one who gives the referral fee to the referring agent.

8 0
3 years ago
The global stock market is often volatile. if your entire investment portfolio loss 10% of it's value in a month during a market
yaroslaw [1]

Answer:

B sell some

Explanation:

in a scenario where it is dropping, it doesn't mean it won't come back up. So you would sell some but keep a few so if it went up you still make profit

6 0
2 years ago
Market researchers often report discretionary income. Discretionary income is your disposable income minus your fixed expenses.
SOVA2 [1]

The percentage of the disposable income that is discretionary is equal to 30.82% if the amount left after fixed expenses is $900.

As the amount left after payment of the fixed expenses is $900, this is said to be the discretionary income because discretionary income is equal to the disposable income minus fixed expenses.

Now we can calculate the percentage of disposable income that is discretionary as follows;

percentage of disposable income that is discretionary = (discretionary income ÷ disposable income) × 100

% discretionary income = (900 ÷ 2,920) × 100

% discretionary income = 90,000 ÷ 2,920

% discretionary income = 30.82%

Hence, 30.82% of the disposable income is calculated to be discretionary if the disposable income is $2,920 and the amount left after payment of fixed expenses is $900.

To learn more about discretionary income, click here:

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3 0
1 year ago
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