Whitewall Tire Co. just paid an annual dividend of $1.70 on its common shares.
1 answer:
Answer:
10.59%
Explanation:
First, find next year's dividend using dividend discount model formula;
D1 = D0 (1+g)
D0 = current dividend paid = 1.70
D1 = expected next year's dividend
g = growth rate = 2.10% or 0.0210 as a decimal
therefore. D1 = 1.70 (1+0.0210)
D1 = 1.70 *1.0210
D1 = 1.7357
With the current price of $20.44, find the cost of stock (r) ;
r =
P0 = Current price
r =
As a percentage, the cost of stock is 10.59%
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Answer: B. Both firm A and firm B choose the low price.
Explanation:
Both firm A and Firm B will choose the low price and make profits of $3 if there is no cooperation.
This is because at any other price, the other firms could go with the low strategy and get more profit.
For instance, if Firm A is using a low price and Firm B is using a high price then Firm A makes profit of $10 whilst B makes $1.
Conversely, if Firm B charges a low price and A a high price, A will make paltry profits of $1 while B would make $10.
Their best option therefore is to both pick the low price and make $3.
If they were cooperating they could both charge a high price and make $5 each.
Your question was incomplete so I attached the payoff matrix.
