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zmey [24]
3 years ago
7

The FI Corporation’s dividends per share are expected to grow indefinitely by 5% per year. a. If this year’s year-end dividend i

s $8 and the required rate of return is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $12, what is the value of the ROE on the firm’s investment opportunities? c. How much is the market paying per share for growth opportunities?
Business
1 answer:
bezimeni [28]3 years ago
5 0

Answer and Explanation:

The computation is shown below:

a. The current stock price is

As we know that

Current stock price = (Dividend) ÷ (Required rate of return - growth rate)

= ($8) ÷ ( 10% - 5%)

= $160

b. Now the value of the ROE on the firm’s investment opportunities is

Given that

Dividend  = $8

And,  

The payout ratio = Dividend ÷ Earning per share

                            = $8 ÷ $12

                            = 0.666666666666667

And, retention  ratio (b) is

= 1- 0.666666666666667

= 0.333333333333333

In addition to it

indefinite growth rate (g) = 5%

So, the ROE is

= Growth rate ÷ retention ratio

= 0.15 ÷ 0.3333

= 15%

c. And, the market paying per share is

PVGO = Price - Earning per share ÷ required rate of return

where,

PVGO = Present Value of Growth Opportunity

So, the market paying per share is

= $160 - $12 ÷ 10%

= $160 - $120

= $40

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TiliK225 [7]

Answer:

b. your demand for peanut butter increases today.

Explanation:

If the price of a commodity would increase at a later date, consumers would increase demand for the good today. Consumers would be willing to buy as much as they can at the lower price. This would shift the demand curve to the right.

6 0
3 years ago
Calculate the future value of an investment of $463 for 10 years earning an interest of 9%? (Round your answers to 2 decimal pla
Anon25 [30]

Answer:

$1,096.09

Explanation:

The computation of the future value by using the following formula is shown below:

As we know that

Future value = Present value × (1 + interest rate)^number of years  

= $463 × (1 + 0.09)^10

= $463 × 2.367363675

= $1,096.09

We simply applied the above formula so that the future value could arrive and the same is to be considered

7 0
3 years ago
Atlantic Corporation reported the following amounts at the end of the first year of operations: contributed capital $100,000; sa
romanna [79]

Answer:

A) retained earnings $40,000 and expenses $340,000.

Explanation:

Total Assets = Total Equity + Total Liabilities

$300,000 = Total Equity + $160,000

Total Equity = $300,000 - $160,000

Total Equity = $140,000

Now

Total Equity = Contributed Capital + Retained Earning

$140,000 = 100,000 + Retained Earning

Retained Earning = $140,000 - $100,000 = $40,000

Now

Retained Earning = Revenue - Expenses - Dividend paid

$40,0000 = $400,000 - Expenses - $20,000

$40,0000 = $380,000 - Expenses

Expenses = $380,000 - $40,000

Expenses = $340,000

3 0
3 years ago
question content area the operating expense recorded from uncollectible receivables can be called all of the following except a.
Lyrx [107]

he operating expense recorded from uncollectible receivables can be called all of the following except c. bad receivables expense.

Customers' outstanding debts for goods or services they have received but haven't yet paid for are referred to as accounts receivable. For instance, the amount owing when clients buy things on credit is added to the accounts receivable. It is a debt incurred as a result of a commercial transaction.

The term "accounts receivable" describes the unpaid bills or cash that customers owe a business. The term describes accounts that a company is entitled to get since it has provided a good or service.

Receivables, also known as accounts receivable, are a company's line of credit that typically include terms that call for payments to be made within a somewhat short time frame. Usually, it varies from a few days to a fiscal or calendar year.

To know more about accounts receivable:

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6 0
1 year ago
Suppose the price of salt increases by 25 percent​ and, as a​ result, the quantity of pepper demanded​ (holding the price of pep
Lisa [10]

Answer:

Option (C)

Explanation:

As per the data given in the question,

Price of salt increases by = 25%

Quantity of pepper demanded increases by = 4%

Cross price elasticity = Quantity of demand increases ÷ Price of salt increases

= 4% ÷ 25%

=0.16  

Hence Cross-price elasticity of demand between salt and pepper would be positive.

So option (C) is answer

8 0
2 years ago
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