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lyudmila [28]
3 years ago
5

Pacor Industries recently paid its annual dividend of $2. Dividends have consistently grown at a rate of 2.2%. Analysts estimate

that the stock has a beta of 1.12. The current risk-free rate is 2.4% and the market return is 10.7%. Assuming that CAPM holds, what is the intrinsic value of this stock? Group of answer choices $20.67 $21.52 $21.24 $22.19 $20.64
Business
1 answer:
yulyashka [42]3 years ago
5 0

Answer:

The intrinsic value of the stock is $21.52

Explanation:

To calculate the intrinsic value of the stock, we will use the constant growth model of the dividend discount model (DDM). The DDM values the stock based on the present value of the expected future dividends from the stock. The formula for price today under the constant growth model of DDM is,

P0 = D0 * (1+g) / r - g

Where,

  • D0 * (1+g) is D1 or the next expected dividend
  • r is the required rate of return
  • g is the growth rate in dividends

First of all, we need to calculate the r or required rate of return using the CAPM equation,

r = rRF + Beta * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is the return on market

r = 0.024 + 1.12 * (0.107 - 0.024)

r = 0.11696 or 11.696%

P0 = 2 * (1+0.022) / (0.11696 - 0.022)

P0 = $21.52

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Answer:

b. Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.

Explanation:

Whenever manufacturing overheads are prorated and under-applied or over-applied, then they are charged to inventory or cost which includes overheads as part of it.

As for instance, raw material inventory do not include any overheads, it is just the purchase price of inventory, as no work is performed on it.

Cost of goods sold, includes all the cost incurred to sale the good, from acquiring raw material to converting finished goods, and then adding the sales expense the goods are sold.

Finished goods include every material and overhead to convert the item into finished state and usable state.

Work in process is half way completed, or the percentage prescribed and includes raw material, includes overheads, but the product is somewhere more than raw inventory and less than finished good.

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7 0
3 years ago
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GDP deflator = Nominal GDP ÷ Real GDP

The nominal GDP which includes the addition of population will grow by 4% since the population growth was 4%

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Therefore the the real GDP per person is 8%, which is less than what he said.

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