1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
NemiM [27]
3 years ago
8

You want to earn a return of 10% on each of two stocks, A and B. Each of the stocks is expected to pay a dividend of $4 in the u

pcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B. Using the constant-growth DDM, the value of stock A _________. A. will be higher than the value of stock B B. will be the same as the value of stock B C. will be less than the value of stock B D. The answer cannot be determined from the information given.
Business
1 answer:
emmainna [20.7K]3 years ago
3 0

Answer:

The value of stock A is higher than the value of Stock B and option A is the correct answer.

Explanation:

The constant growth model values the intrinsic value of a stock based on a constant growth rate in the dividends paid by the stock. This is a part of DDM and it values a stock based on the present value of the expected future dividends from the stock.

The formula for price today under constant growth model is,

P0 = D1 / (r -  g)

Where,

  • D1 is the expected dividend for the next period
  • r is the required rate of return
  • g is the growth rate in dividends

<u />

We will calculate the P1 and discount is back one year to calculate the price today because we are given P1 and the constant growth rate applies from Year2 or D2.

<u>Stock A</u>

P1 = 4 * (1+0.06) / (0.1 - 0.06)

P0 = 106 / (1+0.1)

P0 = $96.36

<u />

<u>Stock B</u>

P1 = 4 * (1+0.05) / (0.1 - 0.05)

P0 = 84 / (1+0.1)

P0 = $76.36

<u />

Thus the value of stock A is higher than that of Stock B.

You might be interested in
There are hundreds of highly targeted, upstart sites on the Internet along with magazines created by users. Initially, the main
Artyom0805 [142]

A news reading app is a type of advertising in an online publications that consisted of hundreds of highly targeted on Internet along with magazines created by users.

<h3>What is the Flipboard?</h3>

A news-reading app gathers articles from around the web and delivers them to one's device in attractive Smart Magazines that you can tailor to your own interests.

In conclusion, it is a true statement that the news reading app is a type of advertising in an online publications that consisted of hundreds of highly targeted on Internet along with magazines created by users.

Read more about Flipboard

<em>brainly.com/question/26293415</em>

3 0
3 years ago
How many loads of laundry will each shift pay for if the cost per load rises to 16 quarters? express your answer numerically as
vampirchik [111]

If the price was to rise to $16 quarters then the loads of laundry that each shift would pay for is 112 loads

<h3>How many loads would each shift pay for?</h3>

The amount earned for shift of 75 minutes is:

= 12 x 1.5 hours

= $18

If the cost per load rises to 16 quarters, the number of loads you can afford is:

= Amount earned / cost per load

= 18 / 0.16

= 112 loads

Rest of the question is:

You wash dishes for a chemistry laboratory to make extra money for laundry. You earn 12 dollars/hour, and each shift lasts 75 minutes. Your laundry requires 12 quarters/load.

Find out more on cost per unit at brainly.com/question/8185573

#SPJ1

8 0
2 years ago
Assume that Simple Co. had credit sales of $250,000 and cost of goods sold of $150,000 for the period. It estimates that 1 perce
Dahasolnce [82]

Answer:

A. Debit: Bad Debt Expense 2,500

Credit: Allowance for Doubtful Accounts 2,500

250,000 x .01 = 2,500

B. Debit: Bad Debt Expense 2,750

Credit: Allowance for Doubtful Accounts 2,750

3,000 - 250 = 2,750

8 0
3 years ago
Explain the different management tasks.
zysi [14]

Answer:

planing

organizin

controlling

leading

5 0
3 years ago
Three graduate business students are considering operating a fruit smoothie stand in the Harbor Springs, Michigan, resort area d
Leviafan [203]

Answer:

a. 8,000 + 1,000 + 3.2Q

b. 27,000 + 3.2Q

c. 15,000 Units

Explanation:

a. The accounting cost function is shown below:-

Accounting cost function = Fixed Leasing and insurance cost + material cost and supplied cost

= 8,000 + 1,000 + 3.2Q

b. The economic cost function is shown below:-

Economic cost function  = Accounting cost + Opportunity cost

= 9,000 + 3.2Q + 3*6,000

=27,000 + 3.2Q

c. The computation of break even point is shown below:-

Break even Point = Total Fixed Cost ÷ Price - Average Variable cost

= 27,000 ÷ 5 - 3.2

= 15,000 Units

8 0
3 years ago
Other questions:
  • A bonds price and its yield to maturity are inversely related because:________.
    12·1 answer
  • Starlite Industries will need $2.2 million 4.5 years from now to replace some equipment. Currently, the firm has some extra cash
    6·1 answer
  • According to this excerpt, what is one major way in which the world bank differs from a regular bank?
    10·2 answers
  • Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose that the demand for this
    5·1 answer
  • PLEASE HELP ME!
    5·1 answer
  • Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,0
    6·1 answer
  • The MC = P rule applies
    14·1 answer
  • A restaurant food chain has over 680 restaurants. All food orders for each restaurant are required to be input into an electroni
    14·1 answer
  • The form of business ownership that has the most difficulty in raising capital is the ....
    11·1 answer
  • In the united states, loans from ________ are far ________ important for corporate finance than are securities markets.
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!