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tatuchka [14]
3 years ago
6

A company is about to go public. it announces that it plans to pay a $1 per share dividend in its first year of existence and 2$

in its second year. from year 3 onwards dividends are expected to grow at a constant rate of 10% per year. the risk free rate is 5%, the company's beta is 2 and the expected market return is 20%. what should be the ipo stock price?
Business
1 answer:
andreyandreev [35.5K]3 years ago
8 0

Answer:

Issue price of IPO = $5.41442

Explanation:

As provided:

Using capital asset pricing model we have:

Expected return on security = Rf + Beta \times (Rm - Rf)

Where Rf = Risk free rate of return

Rm = Market return

Expected return = 5% + 2 \times (20% - 5%)

= 0.05 + 0.30

= 35%

Year 3 dividend = $2 + 10% = $2.20

Thus price using dividend growth model

= \frac{2.20}{0.35\ -\ 0.10} = 8.80

Its discounted value = $8.80 \times 0.4064 = $3.57632

Year 2 dividend = $2, its discounted value @ 35% = $2 \times 0.5487

= $1.0974

Discounted value of dividend of year 1 = $0.7407

Total price of stock = $0.7407 + $1.0974 + $3.57632 = $5.41442

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decides to use the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income needs are
nadya68 [22]

Answer:

$130,000

Explanation:

For determining the additional life insurance required first we need to follow some steps which are shown below:-

Step 1

Total needs = Cash needs + Income needs + Special needs

= $30,000 + $140,000 + $100,000

= $270,000

Step 2

Total assets held = Bank accounts + Retirement plans + Investment accounts

= $20,000 + $30,000 + $40,000

= $90,000

Step 3

Total amount of life = $270,000 - $90,000

= $180,000

and finally

Additional life insurance required =

The Total amount of life - Life insurance provided by the employer

= $180,000 - $50,000

= $130,000

3 0
4 years ago
Travis Corporation begins the year with $50,000 of tire inventory. The company purchases tires worth $150,000 during the year. A
bekas [8.4K]

Answer:

$170,000

Explanation:

Given that,

Travis Corporation begins the year with $50,000 of tire inventory that means inventories in the beginning of the year.

Purchases of tires during the year = $150,000

At the end of the year,

Purchase cost of remaining inventory = $30,000

Therefore,

Cost of goods sold:

= Beginning inventories + Purchases - Ending inventories

= $50,000 + $150,000 - $30,000

= $200,000 - $30,000

= $170,000

6 0
3 years ago
When a provider is seeking ethical problem solving consultation from a provider in another city, county or state, that provider
natta225 [31]

That provider should only share identifying information with the client's consent and never without that.

In many situations when this kind of circumstances are faced the primary concern should be to make sure that confidentiality is ensured and the consent of the client is vital or it can endanger client’s privacy as well as in extreme cases safety.

8 0
3 years ago
Heath can pay $10 for one meal deal at the hamburger restaurant or $15 for
andrezito [222]

The marginal cost of the second meal deal is $5.

<h3>What is the marginal cost?</h3>

The marginal cost is the change in total cost when consumption is increased by one unit.

Marginal cost = change in total cost / change in consumption

($15 - $10) / (2 - 1) = $5

To learn more about marginal cost, please check: brainly.com/question/16399134

#SPJ1

8 0
2 years ago
Huey has eaten two hamburgers and is considering a third.The marginal benefit in his decision is the pleasure from consuming
krok68 [10]

Answer:

C

Explanation:

A rational consumer would keep consuming as long as he continues to derive satisfaction from consuming one more unit of a product..

For example, if you have eaten two hamburgers and you are contemplating whether to consume one more unit of hamburger or not.  one of the factors you would consider is if you would derive a marginal benefit from one more consumption. If you would, you would consume one more hamburger and if you would not, you won't consume the hamburger

6 0
4 years ago
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