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Schach [20]
2 years ago
9

The Lighthouse Co. is in a downsizing mode. The company paid a $2.50 annual dividend last year. The company has announced plans

to lower the dividend by $.50 a year. Once the dividend amount becomes zero, the company will cease all dividends permanently. The required rate of return is 16%. What is one share of this stock worth?
Business
1 answer:
Helen [10]2 years ago
5 0

Answer:

$3.7557

Explanation:

The computation of one share of this stock worth is shown below:-

Years    Dividend     Present value         Present value

                                 factor at 16%    

0            $2.50

1             $2.00         0.8621                             $1.7241

2            $1.50           0.7432                            $ 1.1147

3             $1.00         0.6407                            $0.6407

4             $0.50       0.5523                             $0.2761

                                  Total                              $3.7557

Present value factor at 16% = (1 ÷ (1 + discount rate))^years  

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Situation 22-4 Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $200,000 in total revenues and paid $1
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Suppose that XYZ Company hires labor and capital in competitive input markets. Assume that labor costs $200 per day and that a u
GuDViN [60]

Answer:

a) Yes, the firm is minimizing the cost of current production. This is because MRPL / w = MRPC / r = 0.20.

b) The long run adjustments that the firm would likely make in response to the wage increase is to use more labor and less capital until MRPL / w = MRPC / r, which is the condition for the cost minimization of a firm.

Explanation:

a) Given the information provided, is the firm minimizing the cost of current production? Explain why or why not.

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MRPL / w = MRPC / r ……………………………. (1)

Where:

MRPL = Labor's marginal product = 40

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Therefore, we have:

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Since MRPL / w = MRPC / r = 0.20, this implies that these conditions are consistent with equation (1). Therefore, the firm is minimizing the cost of current production.

b) If the daily wages were to increase, explain the long run adjustments that the firm would likely make in response to the wage increase.

If the daily wages were to increase, the MRPL / w in equation (1) in part a above will fall and we will have:

MRPL / w < MRPC / r …………………… (2)

Since equation (2) is no longer consistent with equation (1), the firm is NOT minimizing the cost of current production.

Therefore, the long run adjustments that the firm would likely make in response to the wage increase is to use more labor and less capital until MRPL / w = MRPC / r, which is the condition for the cost minimization of a firm.

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Answer:

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