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MakcuM [25]
3 years ago
12

Ever After Incorporated has common stock that is expected to grow at a rate of 15% over the next year. After this first year, it

will stabilize to a 2% long-term growth rate. If the dividend just paid (D0) was $2.33 and the required rate of return on the stock is 6%, what is the value of the stock today (to 2 decimals)?
Business
1 answer:
dem82 [27]3 years ago
4 0

Answer:

$66.99

Explanation:

The computation of value of the stock is shown below:-

= Dividend in year 1 ÷ (1 + required rate of return) + 1 ÷ (1 + required rate of return) × ((Dividend in year 1 × (1 + growth rate) ÷ (required rate of return - growth rate))

= ($2.33 × 1.15) ÷ 1.06 + 1 ÷ 1.06 × (($2.33 × 1.15 × 1.02) ÷ (0.06 - 0.02))

= $2.6795  ÷ 1.06 + 1 ÷ 1.06 × ($2.73309  ÷ 0.04)

= $2.527830189  + 0.943396226  × $68.32725

= $2.527830189  + 64.45966981

= $66.9875

or $66.99

Therefore for computing the value of stock we simply applied the above formula.

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4 0
1 year ago
On September 11, 2016, Home Store sells a mower for $450 with a one-year warranty that covers parts. Warranty expense is estimat
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Answer:

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Sept, 11           Cash                                             $450  

2016         Sales                                                               $450  

                (To record the Cash Sales)

Sept, 11        Warranty Expenses                         $40.50  

2016              ($450 x 9%)

                  Estimated Warranty Payable                   $40.50  

                 (To record the Warranty Expenses)    

July, 24       Estimated Warranty Payable             $32

2017             Repairs Parts Inventory                                       $32

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6 0
3 years ago
Assume the price of gasoline doubles tonight and remains at that price the next two years. The price elasticity of demand for ga
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Answer:

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Explanation:

When its price changes, the supply, and demand for an inelastic good or service are not dramatically impacted. Whether the price of an inelastic product goes up or down, the buying habits of consumers remain roughly the same. <em>Prescription drugs, food, clothing, </em>and <em>gasoline</em> are common examples of inelastic goods.

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6 0
3 years ago
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