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Alika [10]
3 years ago
13

Fowler, Inc., just paid a dividend of $2.70 per share on its stock. The dividends are expected to grow at a constant rate of 4.5

percent per year, indefinitely. Assume investors require a return of 9 percent on this stock. a. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the price be in six years and in thirteen years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Business
1 answer:
Galina-37 [17]3 years ago
4 0

Answer:

<h2>Fowler, Inc.</h2>

a. Current price = Current Dividend/r - g

where r = Required Rate of Return

and g = growth rate

= $2.70/0.09 - 0.045

= $2.70/0.045

= $60

b. The price in six years' time, growing at 4.5%

= Current price x (1 + g)^6

= $60 x 1.30226

= $78.14

c. The price in thirteen years' time, growing at 4.5%

= $60 x 1.772196

= $106.33

Explanation:

a) Data and Calculations:

Current Dividend = $2.70

Dividends' constant growth rate = 4.5% p.a. indefinitely

Investors' required rate of return = 9%

Fowler, Inc.'s stock prices calculated using the dividend, growth rate, and investors required rate of return gives the intrinsic values of the stock for the current year, in six and thirteen years' time.  The intrinsic value calculation eliminates the need to value the stock subjectively.

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The centralized computer technology department of Hardy Company has expenses of $320,000. The department has provided a total of
Irina-Kira [14]

Answer:

Retail Division  $480,000

Commercial Division  $30,000

Explanation:

To measure divisional income consider only those items attributable to a particular division.

Retail Division

Sales                                                                             2,150,000

<em>Less</em> Cost of Sales                                                       (1,300,000)

Controllable Contribution                                              850,000

<em>Less</em> Controllable Fixed Cost :

Selling expenses                                                          (150,000)

Allocated Central Cost (2,750/4,000×$320,000)     (220,000)

Divisional Profit Contribution                                       480,000

Commercial Division

Sales                                                                              1,200,000

<em>Less</em> Cost of Sales                                                        (800,000)

Controllable Contribution                                              400,000

<em>Less</em> Controllable Fixed Cost :

Selling expenses                                                          (150,000)

Allocated Central Cost (1,250/4,000×$320,000)      (220,000)

Divisional Profit Contribution                                         30,000

8 0
3 years ago
On January 1, 2020, Martinez Company makes the two following acquisitions. 1. Purchases land having a fair value of $330,000 by
vova2212 [387]

Answer:

Explanation:

a)

Date Account Titles and Explanation Debit Credit

January 1, 2020 Land $360,000.00

Discount on notes payable $246,621.00

Notes payable $ 606,621.00

(To record purchase of land by issuing note payable)

PV of $606,621 discounted at 11% =606,621/(1.11)^5 = $ 360,000

2.

Computation of the discount on notes payable:

Maturity value $560,000

Present value of $560,000 due in 8 years at 11% = $560,000 * 0.43393 = $ 243,000

Present value of $39,200 payable annually for 8 years at 11% annually—$39,200 * 5.14612 = $ 201,728

Present value of the note = $ 243,000 + $ 201,728 = $ 444,728

Discount = $ 560,000 - $ 444,728 = $ 115,272

Date Account Titles and Explanation Debit Credit

January 1, 2020 Equipment $444,728.00

Discount on notes payable $115,272.00

Notes payable $ 560,000.00

(To record purchase of equipment by issuing note payable)

b)

1.

Date Account Titles and Explanation Debit Credit

December 31, 2020 Interest expense ($ 360,000*11%) $39,600

Discount on notes payable $39,600

(To record the interest expense recorded and discount amortized)

2.

Date Account Titles and Explanation Debit Credit

December 31, 2020 Interest expense ($444,728 * 11%) $48,920

Discount on notes payable $9,720

Interest Payable ( $ 560,000 * 7%) $39,200

(To record the interest expense recorded)

7 0
3 years ago
3. Imagine that you are a nonsmoker sharing a room with a smoker. According to the Coase theorem, what determines whether your r
Sauron [17]

Answer:

See the explanation below.

Explanation:

Coase theorem states that it is possible for private parties to solve the problems of externalities with involving a third party it is costless for them to bargain over resource allocation.

Given this description, we can now answer the question as follows:

a.  What determines whether your roommate smokes in the room?

Based on the above, the smoker and non-smoker will bargain over whether it is possible for the smoker to continue smoking in the room based on the value of the choice of each party.

If the value placed on clean air by the nonsomker is greater than the value the smoker placed on smoking, the bargain will result in stopping smoking by the smoker. But if the value placed on smoking by the smoker is greater than the value the nonsmoker placed on clean air, the bargain will result in the smoker continue to smoke in the room.

b. Is this outcome efficient?

This outcome is efficient as the bargaining process is costless or as long as no transaction costs prohibit them from reaching an agreement.

c. How do you and your roommate reach this solution?

It is possible to reach this solution either by the non-smoker paying off the smoker to stop smoking, or the smoker paying off the non-smoking roommate to continue smoking.

6 0
3 years ago
Make way for India - the next China China grows at around 9 percent a year, but its one-child policy will start to reduce the si
lorasvet [3.4K]

Answer:

The answer is "India and increases".

Explanation:

Since its working-age population is rising, India will have a higher economic growth rate, and according to traditional thinking, restricting China's people would boost economic growth.

  • The modernization theory includes reducing population growth in China would reduce economic growth.
  • In India, real GDP per person has a growth of 8-1.6 = 6.4% as well as that of China is 9-0.6 = 8.4% in 2005.
  • In India, the doubling time is 70/6.4% = 11 years or 2016 and in China, 8.33 or 2014.
5 0
3 years ago
LaTanya Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 percent. The bonds mature in
kkurt [141]

Answer:

Case A:$100,000

Case B:$111,164.76

Case C:$94,967.05

Explanation:

The issue price of the bond can be computed using the excel pv formula stated below:

=-pv(rate,nper,pmt,fv)

Case A:

Rate is the market interest rate of 8%

nper is the number of coupon interest payable by the bond which is 7

pmt is the annual coupon interest of $8,000 (8%*$100,000)

fv is the face value of $100,000

=-pv(8%,7,8000,100000)=$100,000

Case B:

Rate is the market interest rate of 6%

nper is the number of coupon interest payable by the bond which is 7

pmt is the annual coupon interest of $8,000 (8%*$100,000)

fv is the face value of $100,000

=-pv(6%,7,8000,100000)=$111,164.76  

Case C:

Rate is the market interest rate of 9%

nper is the number of coupon interest payable by the bond which is 7

pmt is the annual coupon interest of $8,000 (8%*$100,000)

fv is the face value of $100,000

=-pv(9%,7,8000,100000)=$94,967.05  

 

6 0
3 years ago
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