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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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Hakeem wants to diversify his investment portfolio. He wants an asset with
dlinn [17]

Answer:

D

Explanation:if he would invest in commercial real estate it would be  commercial so he could do anything with it

4 0
2 years ago
tone Company produces carrying cases for CDs. It has compiled the following information for the month of June: Physical UnitsPer
Svetlanka [38]

Answer:

TOTAL 258,000

TOTAL 258,000

Explanation:

Calculation to reconcile the number of physical units Using the FIFO method

PHYSICAL UNITS

Beginning Inventory 74,000

Units Started 184,000

TOTAL 258,000

PHYSICAL UNITS

Units Completed 164,000

(258,000-94,000)

Ending Inventory 94,000

TOTAL 258,000

Therefore Using the FIFO method to reconcile the number of physical units will give us 258,000 and 258,000

4 0
2 years ago
Lena invested her savings in two investment funds. The $6000 that she invested in Fund A returned a 6% profit. The amount that s
Nostrana [21]

Answer:

The amount that Lena will invest in fund B would be $4000.

Explanation:

Given information -

Amount invested in fund A - $6000

Return earned on fund A - 6%

Let us assume amount invested in fund B be x

Return earned on fund B - 1%

Return on both funds together - 4%

Let us assume the total amount of fund invested be ($6000 + x)

Now using simple equation , we will take out the value of x which is the amount invested in fund B -

$6000 X 6% + x X 1% = 4% ( $6000 + x )

= $360 + .01 x = $240 + .04 x

= $360 - $240 = .04 x - .01 x

$120 = .03 x

x = $120 / .03

= $4000.

4 0
3 years ago
Consider a portfolio of stocks X, Y, Z whose returns in various economic conditions are set forth below.
jeka57 [31]

Answer:

The expected return is 10.95%

Explanation:

CALCULATE THE EXPECTED RETURN OF X

State _____Probability __X_____Expected return

Boom ____ 0.25 ______22%  ___5.50%

Normal ___ 0.60 ______15%  ___ 9.00%

Recession _0.15 _______5% ___ <u>0.75%  </u>

Total ______________________<u>15.25%</u>

CALCULATE THE EXPECTED RETURN OF Y

State _____Probability __Y_____Expected return

Boom ____ 0.25 ______10%  ___ 2.50%

Normal ___ 0.60 ______9%  ____5.40%

Recession _0.15 _______8% ___ <u>1.20%  </u>

Total ______________________<u>9.10%</u>

Now calculate the weighted average return based on investment in each portfolio

Expected return = ( Expected return of Assets X x Weight of Asset X ) + ( Expected return of Assets Y x Weight of Asset Y )  

Expected return = ( 15.25% x $3000/$10000 ) + ( 9.10% x $7000/$10000 )  

Expected return = 4.575% + 6.370%

Expected return = 10.945%

Expected return = 10.95%

5 0
3 years ago
23. The three steps of project management are _____.
Mrrafil [7]

Answer:

The correct answer is letter "B": creating the work plan, staffing the project, and controlling and directing the project.

Explanation:

Project Management is a discipline that comprehends the organization, planning, motivation, and control of a company's resources to reach objectives established to achieve success in one or many projects within the limits of the corporation.

The main three steps in every project management include project initiation -<em>plan creation</em>, staffing the project -<em>recruiting and selecting project members</em>, and controlling and directing the project -<em>monitoring the project progress</em>.

4 0
3 years ago
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