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
adoni [48]
3 years ago
14

The risk-free rate of return is 6%, the expected rate of return on the market portfolio is 15%, and the stock of Xyrong Corporat

ion has a beta coefficient of 2.3. Xyrong pays out 45% of its earnings in dividends, and the latest earnings announced were $9.00 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18% per year on all reinvested earnings forever.
a. What is the intrinsic value of a share of Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If the market price of a share is currently $22, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
1 answer:
Doss [256]3 years ago
7 0

Answer:

(i) $26.49375

(ii) $29.11

(iii) 52.54%

Explanation:

Required rate of return using CAPM model:

= risk free rate + beta (expected return - risk free rate)

= 0.06 + 2.3 (0.15 - 0.06)

= 0.267 or 26.7%

Growth rate = (1 - dividend payout ratio) × ROE

                    = (1 - 0.45) × 0.18

                    = 0.099 or 9.9%

a)

Dividends per share will be $4.05 since payout ratio is 45%

Intrinsic value of share = D1 ÷ (Rate - growth)

                                      = 4.05(1.099) ÷ (0.267 - 0.099)

                                      = 4.45095 ÷ 0.168

                                      = $26.49375

b)

Price after 1 year = 26.49( 1 + 0.099)

Price after 1 year = $29.11

c)

One year holding period return = ( $29.11 + 4.45 - 22) ÷ 22

                                                     = 0.5254 or 52.54%

You might be interested in
In​ Keynes's analysis of the speculative demand for​ money, what will happen to money demand if people suddenly decide that the
Serggg [28]

Answer:

The correct answer is option C.

Explanation:

When the interest rate falls below the normal level, people expect the interest rates to rise in future and bond prices to fall. This causes investors to sell the bonds at present so that they can buy bonds when they are selling at lower prices in future as of result of an increase in interest rates. Money demand will, as a result, will decrease.

4 0
3 years ago
Lilliput is a country that has closed borders and does not import or export any goods or services; hence, they do not worry abou
sattari [20]

Answer:

The formula to calculate the Budget Balance is

Government Income - Government Expenditure

in this case

$1.05 billion - $1.06 billion = -<u> 0.01 billion or - $100 million</u>

Explanation:

A budget balance is reached when a government expenditures are equal to it's income.

In this case, since the country's only source of income it is slightly less than than what is required to run the government, it has a budget deficient.

Since the country does not export or trade with outside countries, the government will need to take out a loan to make up for this deficient.

5 0
3 years ago
An experienced employee who supervises, coaches, and guides lower-level employees by introducing them to the right people and ge
torisob [31]

Answer:

Mentor

Explanation:

The mentor is the person who has knowledge, experience, skills and he or she is able to guide, motivate, gives the training, supervise the lower skill employees so that they can perfect in their work.

But for motivating, guiding the employees we need to appoint the right people who belong from organizational sponsor so that the lower level employees could able to accomplish their tasks so that the overall objective of the company could be accomplished.

3 0
3 years ago
Bedrock Company reported a December 31 ending inventory balance of $416,000. The following additional information is also availa
Brrunno [24]

Answer:

$392,400

Explanation:

The computation of correct balance for ending inventory on December 31 is shown below:-

Correct balance for ending inventory = Ending inventory – Office supplies

= $416,000 - $23,600

= $392,400

Therefore for computing the correct balance for ending inventory we simply deduct the office supplies from ending inventory and ignore all other amounts as they are not relevant.

3 0
3 years ago
You are planning a special wedding three years from today. You don't know who your spouse will be but you do know that you are s
Novay_Z [31]

Answer:

Total amount collected = $94,400

Explanation:

Given:

1st investment = $25,000

2nd Investment = $35,000

3rd investment = $45,000

Computation of total amount:

Total\ amount = \frac{25,000}{1} +\frac{35,000}{(1+r)^1} +\frac{45,000}{(1+r)^3} \\\\Total\ amount = \frac{25,000}{1} +\frac{35,000}{(1+0.07)^1} +\frac{45,000}{(1+0.07)^3} \\\\Total\ amount = \frac{25,000}{1} +\frac{35,000}{(1.07)^1} +\frac{45,000}{(1.07)^3} \\\\Total\ amount = \frac{25,000}{1} +\frac{35,000}{(1.07)} +\frac{45,000}{(1.2250)} \\\\Total\ amount = 25,000 +32,710.28 +36,734.6939 \\\\Total\ amount = 94,444 \\\\

Total amount collected = $94,400

3 0
3 years ago
Other questions:
  • ULab Inc., a biotechnology firm, lost one of its offices in a fire. The employees did not have a fire drill, and the 10-story bu
    5·1 answer
  • A firm just paid a dividend of $6 per share. Next year the dividend is expected to grow 8 percent, thereafter 10 percent forever
    12·1 answer
  • 7. Explain one way to protect yourself from online or cyber predators.
    12·1 answer
  • Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 2% of credit sales will
    12·1 answer
  • On January 4, 2013, Franc Company purchased for $27,000 a patent that had been filed 8 years earlier. The patent covers a manufa
    15·1 answer
  • The Total Debt to Total Capital ratio is an effective type of debt management ratio because it gives an idea of:______
    14·1 answer
  • Which of these describes what can happen with an adjustable-rate mortgage?
    11·2 answers
  • VUA GẠO MANG HƯƠNG LÀI ĐẾN BỮA CƠM GIA ĐÌNH VIỆT
    10·1 answer
  • On january 15, the owner of a sole proprietorship withdrew $2,000 cash for personal use from the business. how would this entry
    12·1 answer
  • jim root company operates four bowling alleys. the business just received the ​, ​, bank statement from city national​ bank, and
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!