1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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

You might be interested in
A person buys X in one market and combines it with Y purchased in another market. The combination of X and Y gives Z, which the
Sindrei [870]

Answer:

arbitration

Explanation:

Arbitration occurs when the price of a security or a commodity varies significantly between different markets. For example, I purchase gold in the United Kingdom at a lower price than in the United States, and I bring it to the United States and make a profit. Arbitration opportunities result from market inefficiencies and a lack of a single price.

8 0
3 years ago
"During this period, employees had more input into management decisions and how they performed their jobs. The use of groups and
Lyrx [107]

Answer: The 1990s

Explanation:

The aim of human relations is to enable the creation of a win-win scenario such that employee needs can be satisfied and organizational objectives can also be achievable.

In the 1990s, employees had more input into management decisions and how they performed their jobs. Also, the use of groups and teams also became popular.

8 0
3 years ago
Which is the most accurate definition of body language?
Masja [62]
Body Language is communicate by movement or position, particularly facial expressions, gestures and the relative positions of a speaker and listener.
6 0
3 years ago
Read 2 more answers
Two guys walk into a bar; the third one ducks. If these three men acted independently, and the probability is 0.7 that a person
allsm [11]

Answer:

0.063

Explanation:

Given

Probability of a person to not enter into a bar or ducking   is 0.7

Probability of a person to  enter into a bar  

1 - (Probability of a person to not enter into a bar or ducking)

Substituting the given value, we get

Probability of a person to enter into a bar  

= 1 - 0.7 \\= 0.3

Total three men attempts to enter into the bar and their course of action is independent of each others

Thus, probability of observing the first two walking into the bar and the third ducking will be equal to the product of individual probabilities

= 0.7 * 0.3 * 0.3\\= 0.063

7 0
3 years ago
Gatson manufacturing company produces 2 types of tires: Economy tire; Premium tire. The manufacturing time and the profit contri
EastWind [94]

Answer:

(a)Let X1 be the number of economy tires and X2 be the number of premium tires.

Objective function:

Maximize Z, where Z = 12X1 + 10X2

Subject to constraints

4X1/3 + X2/2 <= 600

4X1/5 + X2 <= 650

X1/2 + 2X/4 <= 580

X1/5 + X2/3 <= 120

X1, X2 = Z

(b) Check attachment for spreadsheet

(c) The maximum profit that can be obtained is $6032

8 0
3 years ago
Other questions:
  • Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business using the following fina
    10·1 answer
  • Sarah transferred $450.00 from her savings account to her checking account. She’ll use the check register to record her transact
    11·2 answers
  • Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $3.00 per gallon. Com
    6·1 answer
  • Great Eastern Rectangle (GER) currently has 970,000 shares of stock outstanding that sell for $29.25 per share. Assuming no mark
    10·1 answer
  • Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the Fe
    5·1 answer
  • Your boss listens to employees personal problems and tries to create a positive work environment by being agreeable, eager to he
    13·1 answer
  • You are part of a sales group that has been asked to give a presentation.
    8·1 answer
  • At the end of the current year, Accounts Receivable has a balance of $990,000; Allowance for Doubtful Accounts has a debit balan
    15·1 answer
  • Write a two page essay on politics (also this is for glassaqt)
    15·2 answers
  • A record store that sells $1,000 woth of CDs per day to 40 customers ( the average cost of goods sold per unit is $12.50) How mu
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!