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Pani-rosa [81]
3 years ago
8

A company currently pays a dividend of $2.40 per share. The current price of the stock is $18.22. It expects the growth rate of

the dividend to be 2.5% (0.025) annually. What is the required return rate for this stock according to the dividend-discount model
Business
1 answer:
bogdanovich [222]3 years ago
5 0

Answer:

The required rate of return is 16%

Explanation:

The constant growth model of the DDM is used whenever the dividends are expected to grow at a constant rate in the future forever. The formula for the constant growth model to calculate the price of the share today is,

P0 = D1 / r-g

Where D1 is dividend next year or D0 *(1+g)

r is the required rate of return

g is the growth rate in dividends

Plugging in the available variables, we can calculate the required rate of return (r).

18.22 = 2.4 * (1+0.025) / r - 0.025

18.22 * (r-0.025) = 2.46

18.22r - 0.4555 = 2.46

18.22r = 2.46 + 0.4555

r = 2.9155 / 18.22

r = 0.1600 or 16.00%

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3 years ago
Arden Company reported the following costs and expenses for the most recent month: Direct materials $ 79,000 Direct labor $ 41,0
ICE Princess25 [194]

The question is incomplete. Here is the complete question.

Arden Company reported the following costs and expenses for the most recent month: Direct materials $ 79,000 Direct labor $ 41,000 Manufacturing overhead $ 19,000 Selling expenses $ 22,000 Administrative expenses $ 34,000 Required:

1) What is the total amount of product costs?

2) What is the total amount of period costs?

3) What is the total amount of conversion costs?

4) What is the total amount of prime costs?

Answer:

(1) product cost = $139,000

(2) period cost = $56,000

(3) conversion cost = $60,000

(4) prime cost = $120,000

Explanation:

(1) The total product costs can be calculated as follows.

= Direct material + direct labor + manufacturing overhead

= $79,000 + $41,000 + $19,000

= $139,000

(2) The period cost can be calculated as follows

= selling expenses + administrative expenses

= $22,000 + $34,000

= $56,000

(3) The conversion cost can be calculated as follows

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= $41,000 + $19,000

= $60,000

(D) The prime cost can be calculated as follows

= Direct material + direct labor

= $79,000 + $41,000

= $120,000

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Answer:

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