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rodikova [14]
3 years ago
5

6. The DAP Company has decided to make a major investment. The investment will require a substantial early cash out-flow, and in

flows will be relatively late. As a result, it is expected that the impact on the firm's earnings for the first 2 years will be a negative growth of 5% annually. Further, it is anticipated that the firm will then experience 2 years of zero growth after which it will begin a positive annual sustainable growth of 6%. If the firm's cost of capital is 10% and its current dividend (D0) is $2 per share, what should be the current price per share?
Business
1 answer:
Trava [24]3 years ago
4 0

Answer:

The DAP Company

Current price per share:

Current price = Current Dividend (D0) / (WACC - Growth Rate)

= $2/ (0.10 - 0.06) = $50

Explanation:

The technique used to value the share price is called the Dividend Discount Model (DDM).  The Myron Gordon model of this DDM is popularly used.

This model states that the current price of a share is the Current Dividend (D0) divided the difference between the cost of capital and the growth rate.

The result is the intrinsic value of the stock.  The model assumes that dividends are paid in perpetuity and that the growth rate is constant over many years.

These remain assumptions as the real life offers quite different scenarios.  There is no company that pays dividend every year in perpetuity.   A company's growth rate is never constant year on year.

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Answer:

A. Selection of the appropriate causal variable Y is important

Explanation:

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From this function we can see that Y is dependent on X. That is, it is a function of X. Y is not a causal variable. A causal variable is a variable that is able to influence the variable of interest. From this question Y is the variable of interest. It is the dependent variable. The independent variable is X and it is the causal variable.

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5 0
3 years ago
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Answer:

Union shop

Explanation:

Union shop

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8 0
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Answer:

The correct answer is: microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

Explanation:

Economics is divided into two different categories: microeconomics and macroeconomics. <u>Microeconomics </u>is the study of individuals and business decisions, while <u>macroeconomics </u>looks at the decisions of countries and governments. They are interdependent and complement one another since there are many overlapping concerns between the two fields.

<u>Microeconomics </u>is the study of decisions made by people and businesses. Microeconomics focuses on supply and demand and other forces that determine the price levels in the economy. Microeconomics tries to understand human choices and resource allocation.

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hope it helps you

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