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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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Diamond Productions reports a net change in cash of $50,000 on its statement of cash flows. What is the net cash provided by ope
Tanya [424]

Answer:

$21,000

Explanation:

Given;

net change in cash = $50,000

net cash provided by investing = $5,000

net cash provided financing activities = $14,000

net change in cash = net cash provided by operating + net cash provided by investing + net cash provided financing activities

50000 =  net cash provided by operating + 5000 + 14000

net cash provided by operating = 50000 - 5000 - 14000

                                                     = 21000

net cash provided by operating is $21,000

8 0
2 years ago
Matt inherited as a trust a fifteen-year annuity-immediate with annual payments. He has been told that the annuity payments earn
Pavel [41]

Answer:

effective annual interest rate = 6.32%

annual payment = $1,585

Explanation:

I believe that this is an ordinary annuity, so we can use the future and present value of an ordinary annuity formula:

FV = annual payment x FV annuity factor, so annual payment = FV / FV annuity factor

PV = annual payment x PV annuity factor, so annual payment = PV / PV annuity factor

we can equal both equations:

PV / PV annuity factor = FV / FV annuity factor

FV / PV = FV annuity factor / PV annuity factor

$37,804.39 / $15,077.10 = FV annuity factor / PV annuity factor

2.5074 = FV annuity factor / PV annuity factor

the easiest way to solve this is to use an annuity table since we already know that there are 15 periods (I used an excel spreadsheet):

%,15 periods      FV annuity factor     PV annuity factor        FV/PV

1                                 16.097                   13.865                      1.1609

2                                17.293                   12.849                      1.34586

3                                18.599                    11.938                      1.55797

4                               20.024                     11.118                       1.80104

5                                21.579                   10.380                      2.07890

<u>6                               23.276                   9.7122                       2.3966</u>

<u>7                                25.129                   9.1079                       2.7590</u>

8                                27.152                   8.5595                       3.1721

9                                29.361                   8.0607                      3.6425

10                               31.772                   7.6061                         4.4112

The interest rate must be between 6 and 7%:

%,15 periods      FV annuity factor     PV annuity factor        FV/PV

6                               23.276                   9.7122                       2.3966

6.1                             23.45404              9.6461                       2.43145

6.2                            23.63369              9.5858                      2.46549

6.3                            23.81491               9.52467                     2.50034

6.31                           23.83312               9.51851                     2.50387

<u>6.32                          23.85135               9.51236                     2.5074</u>

6.4                            23.99773              9.46337                     2.53585

effective interest rate = 6.32% per year

annual payment = $37,804.39 / 23.85135 = $1,585

           

6 0
3 years ago
It is claimed that mutual funds have two advantages. The first is that mutual funds allow people with small amounts of money to
romanna [79]

Answer:

The correct answer is d. Economists strongly agree with the first claim, but are skeptical of the second.

Explanation:

A mutual fund is an investment alternative that consists of contributions from natural and legal persons (called participants or contributors), to form equity for their investment in shares, debt instruments or fixed income, or a combination of both ( shares + fixed income). They offer a diversified investment alternative since they invest in numerous instruments at the same time. These instruments vary according to the type of fund and are defined by the investment policy regulated by the Superintendency of Securities and Insurance. They are managed by corporations called General Fund Administrators (AGF) that are chosen by the participants themselves. It is important to choose both the administrator and the type of fund based on what best suits each personal situation.

5 0
3 years ago
Select the answer that best completes this sentence. Los pesos from different Spanish Speaking countries are _____
VMariaS [17]

I believe the answer is: different


The values of pesos from these spanish speaking countries are different depending on how good their performance in the market.

For example,

1000 mexican peso is equal to +/- 50 USD

1000 Argentine peso is equal to +/- 30 USD

8 0
3 years ago
Read 2 more answers
A portfolio manager has a large position in the preferred stock of XYZ Corporation. The manager is concerned that market interes
Ksivusya [100]

Answer:

To hedge the preferred stock position, the manager should: Buy tyx calls

Explanation:

When market interest rate rise preferred stock drop. To hedge using interest rate index option, <em>the contract must offer an offsetting profit during a period of rising interest rates. Therefore buy TYX calls. </em>These will continue to give ever increasing profit as market interest rate continue to rise. And it will offset the ever increasing loss that would be incurred on the XYZ preferred stock position as the market interest rate continues rising.

The hedge is that Any loss on preferred stock position would be offset by corresponding gain on the long interest rate index call position.

5 0
3 years ago
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