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
konstantin123 [22]
3 years ago
13

Navel County Choppers, Inc., is experiencing rapid growth. The company expects dividends to grow at 23 percent per year for the

next 10 years before leveling off at 7 percent into perpetuity. The required return on the company’s stock is 15 percent. If the dividend per share just paid was $1.89, what is the stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Business
1 answer:
Nina [5.8K]3 years ago
8 0

Answer:

P0 = $77.397794 rounded off to $77.40

Explanation:

The two stage growth model of DDM will be used to calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = D0 * (1+g1) / (1+r)  +  D0 * (1+g1)^2 / (1+r)^2  +  ...  +  D0 * (1+g1)^n / (1+r)^n  + [(D0 * (1+g1)^n  *  (1+g2) /  (r - g2))  /  (1+r)^n]

Where,

  • g1 is the initial growth rate
  • g2 is the constant growth rate
  • D0 is the dividend paid today or most recently
  • r is the required rate of return

P0 = 1.89 * (1+0.23) / (1+0.15)  +  1.89 * (1+0.23)^2 / (1+0.15)^2  +  

1.89 * (1+0.23)^3 / (1+0.15)^3  +   1.89 * (1+0.23)^4 / (1+0.15)^4  +  

1.89 * (1+0.23)^5 / (1+0.15)^5  +  1.89 * (1+0.23)^6 / (1+0.15)^6  +  

1.89 * (1+0.23)^7 / (1+0.15)^7  +  1.89 * (1+0.23)^8 / (1+0.15)^8  +  

1.89 * (1+0.23)^9 / (1+0.15)^9  +  1.89 * (1+0.23)^10 / (1+0.15)^10  +  

[(1.89 * (1+0.23)^10  *  (1+0.07)  / (0.15- 0.07))  /  (1+0.15)^10]

P0 = $77.397794 rounded off to $77.40

You might be interested in
The probability distribution is bell shaped and symmetrical
Alexxandr [17]

normal. This was fill in the blanks right? Next time you ask a fill in the blank question you should use underscores where the missing word is.

6 0
3 years ago
The government sector get its income mostly from exports to other countries.
Dmitriy789 [7]

Answer:

Explanation:

false

6 0
3 years ago
When the price of chai tea lattés is $5, maxine buys 20 per month. when the price is $4, she buys 30 per month. maxine's demand
nirvana33 [79]

Answer:

b. elastic, and her demand curve would be relatively flat.

Explanation:

he elasticity of demand is a term that describes the degree of responsiveness of demand due to changes in price. Elastic demand is when demand for a good or service is sensitive to changes in price. A small change in price results in a significant change in the quantity demanded.

Maxine has elastic demand for chai tea. A small decrease in the price of $1 ( 20 percent ) causes the demand to rise by 50 percent. The demand curve for an elastic product is relatively horizontal. It may be referred to as flat. The price is indicated on the Y-axis and the quantity of the X-axis. A small movement of the Y-axis big reaction on the X-axis tilting the demand curve to a horizontal shape.

4 0
3 years ago
yle Co. has $1.1 million of debt, $3 million of preferred stock, and $1.2 million of common equity. What would be its weight on
Virty [35]

Answer:

0.22

Explanation:

Calculation for the weight on common equity

Using this formula

Weight of Common equity = Common Equity/(Debt + Preferred Equity+Common Equity)

Where,

Common Equity=1.2

Debt =1.1

Preferred Equity=3

Let plug in the formula

Weight of common equity = 1.2/(1.1+ 3+ 1.2)

Weight of common equity=1.2/5.3

Weight of Common Equity=0.22

Therefore the weight on common equity will be 0.22

3 0
3 years ago
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price $1,080,000,
Agata [3.3K]

Answer:

a. What is the Year 0 net cash flow?

  • = $1,102,500 + $15,500 = $1,118,000

b. What are the net operating cash flows in Years 1, 2, 3?

  • NCF Year 1 = $375,496.38
  • NCF Year 2 = $418,521.44
  • NCF Year 3 = $304,148.09

c. What is the additional Year 3-cash flow (i.e. after tax salvage and the return of working capital)?

  • $355,433.10

d. If the project's cost of capital is 12%, should the machine be purchased?

  • NPV = $20,384.22 since it is positive, then the project should be carried out and the machine should be purchased.

Explanation:

book value of the robotic sprayer = $1,080,000 + $22,500 = $1,102,500

useful life 3 years, salvage value $605,000

MACRS 3-year class:

0.333 x $1,102,500 = $367,132.50

0.4445 x $1,102,500 = $490,061.25

0.1481 x $1,102,500 = $163,280.25

requires an additional $15,500 investment in inventory

saves $380,000 per year

marginal tax rate 35%

net cash flow year 1 = [net savings x (1 - tax rate)] + (depreciation expense x tax rate) = ($380,000 x 65%) + ($367,132.50 x 35%) = $247,000 + $128,496.38 = $375,496.38

net cash flow year 2 = [net savings x (1 - tax rate)] + (depreciation expense x tax rate) = ($380,000 x 65%) + ($490,061.25 x 35%) = $247,000 + $171,521.44 = $418,521.44

net cash flow year 3 = [net savings x (1 - tax rate)] + (depreciation expense x tax rate) = ($380,000 x 65%) + ($163,280.25 x 35%) = $247,000 + $57,148.09 = $304,148.09

terminal cash flow = [sales price - (purchase cost - accumulated depreciation)] x (1 - tax rate) + recovered net working capital = [$605,000 - ($1,102,500 - $1,020,474)] x 0.65 + $15,500 = $355,433.10  

using an excel spreadsheet I calculated the NPV:

Year 0 -$1,118,000

Year 1 $375,496.38

Year 2 $418,521.44

Year 3 $304,148.09 + $355,433.10 = $659,581.19

discount rate 12%

NPV = $20,384.22

4 0
3 years ago
Other questions:
  • g The "monetary base" is simply: a. the total of all currency in circulation, outside banks b. the total vault cash held among a
    6·1 answer
  • You're deciding whether to install an $800 moonroof and a $400 security system in your car. Suppose the marginal benefit from th
    14·1 answer
  • A firm has a profit margin of 12 percent; total asset turnover of 0.55 and an equity multiplier of 2.2. What is the firm's ROA a
    9·1 answer
  • The City of Southern Pines maintains its books so as to prepare fund accounting statements and records worksheet adjustments in
    14·1 answer
  • Couurtney bought a shirt for $24. with a coupon for 25% off. what was the original price of the shirt before the discount
    15·1 answer
  • Tamarisk Corporation purchased a truck by issuing an $118,400, 4-year, zero-interest-bearing note to Equinox Inc. The market rat
    6·1 answer
  • If offered employment by Amazon, would you be legally eligible to begin employment immediately?
    14·1 answer
  • Majestic Manufacturing sold Jordans Furniture a living room set for an $8,550 list price with 40% trade discount. The $125 freig
    6·1 answer
  • What tends to happen to the accuracy of our savings goals as our investment horizon becomes longer?
    9·1 answer
  • Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. its
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!