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ivolga24 [154]
3 years ago
8

Garcia Ltd. is trying to estimate its cost of common equity, and it has the following information. The firm has a beta of 0.90,

the before-tax cost of the firm's debt is 7.75%, and the firm estimates that the risk-free rate is 5% while the current market return is 13%. The firm pays dividends annually and expects dividends to grow at a constant rate of 5% indefinitely. The most recent dividend per share, paid yesterday, is $2.00. Currently, the firm's stock sells for $35.00 per share, but if the firm issues new shares, it will net $33.15 per share. Finally, the firm has a marginal tax rate of 34%. The cost of new common stock is ___________.
Business
1 answer:
Lady bird [3.3K]3 years ago
6 0

Answer:

Cost of common stock = 11.33%

Explanation:

<em>The cost of common stock can be determined using the dividend valuation model.</em>

<em>According to the dividend valuation, the value of a stock is the present value of expected future dividends discounted at the required rate of return</em>.

The model can me modified to determined the cost of equity having flotation cost as follows:

Cost of equity = D(1+r )/P(1-f) + g

d- dividend, p- price of stock , f - flotation cost , - g- growth rate  

Cost of common stock =

D- 2.00, g- 5%, Price net flotation cost = $33.15

Ke = 2.00 × (1.05)/33.15)  + 0.05 × 100

= 11.33%

Cost of common stock = 11.33%

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Suppose the supply function for avocados is Q = 58 + 15p - 20p_f. where P_f is the price of fertilizer. If the price of fertiliz
Veseljchak [2.6K]

Answer:

-22.

There will be the decrease in price hence the supply curve shifts to the left.

Explanation:

So, it is given from the question above that the supply function for avocados is Q = 58 + 15p - 20p_f.

The p_f given in the question = $1.10 which is the price given for the fertilizer as it rises that is to say it rises at that amount.

If the price increases by $1.10, then we have a reduction of -( 20 × 1.10) = -22.

Kindly note that the negative sign denotes the reduction in supply. This reduction causes the supply curve to shift to the left.

The diagram for the supply curve Is given in the attached picture.

5 0
3 years ago
Scene: A savvy investor has a mix of stocks and bonds in their investment portfolio. Why would it be a good idea to mix stocks a
Komok [63]

Answer:

Explanation:

It wouldn't now, unless you are very wealthy. Interest rates are very low and you would have to go into the junk bond market to get any kind of decent return. But Junk Bonds are or can be very unstable and you get a high return for a very chancy situation.

I think I know what the question wants you to understand. You need something that will provide with income. You just don't want to deal with bonds. There are stocks around that pay dividends; they are very conservative and if they go down, that will be the least of your problems.

You can then devote your resources to capital gains or pure stocks: no interest payments, but the stock itself goes up. There is a whole different tax system for capital gains.

You should also get some gold or silver as insurance.

Since you have asked about stocks and bonds, I have not said anything about cryptos. That's an option, but you have to be very knowledgeable because those things can be an investment nightmare.

7 0
3 years ago
Service, repair work, and accessories may be important considerations in a consumer's decision to purchase a particular shopping
xenn [34]

Answer:

True (1)

Explanation:

In deciding whether to buy a particular product, it is important to consider  below pertinent issues :

Serviceability : questions need to  be asked whether the product can be serviced regularly to keep it in usable condition and possible cost of servicing must as well  be considered.

Repairability  : Seller must be asked if the product is repairable in case it is faulty.

Accessories : Availability of accessories in the market must be confirmed from the seller in case we need to replace any part.

Failure to sort out above  issues before buying  may result in wasting of money at the end of the day even though product might have been bought  at a cheaper lock-in price.

6 0
3 years ago
Roberta transfers property with a tax basis of $495 and a fair market value of $546 to a corporation in exchange for stock with
Volgvan

Answer: $546

Explanation:

The amount realized by Roberta in the exchange will be gotten through the addition of the fair value of the stock that was acquired to the liability that's assumed by the corporation. This will be:

Fair value of stock acquired = $356

Add: Liability assumed by corporation = $190

Amount realised = $356 + $190 = $546

5 0
3 years ago
Transactions for the Monty Company, which provides welding services, for the month of June are presented below. June 1 Monthly i
Leona [35]

Answer:

<u>Transactions:</u>

1. June 1 Monthly invests $3, 910 cash in exchange for shares of common stock in a small welding business.

2. June 2 Purchases equipment on account for 340.

3. June 3 $760 cash is paid to landlord for June rent.

4. June 12 Bills P. Leonard $410 after completing welding work done on account.

<u>Journal Entries:</u>

1.

June 1              Dr.      Cr.

Investment   $3,910

Cash                          $3,910

2.

June 2              Dr.      Cr.

Equipment     $340

Account Payable       $340

3.

June 3                Dr.        Cr.

Rent Expense   $3,760

Cash                               $3,760

4.

June 12                                Dr.        Cr.

P. Leonard (Receivable)     $410

Welding Service Revenue              $410

6 0
3 years ago
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