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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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OLga [1]

Answer:

If the units are reworked, income will increase by $5,800.

Explanation:

Giving the following information:

Number of units= 1,000

Sell as-is= $4.3

Rework cost= $2.8

Selling price= $12.9

<u>Because the original cost will remain constant in both options, we will not take them into account.</u>

Sell as-is:

Effect on income= 1,000*4.3= $4,300

Rework:

Effect on income= 1,000*(12.9 - 2.8)

Effect on income= $10,100

If the units are reworked, income will increase by $5,800.

4 0
3 years ago
Advantages of being able to apply Barnlund’s Transactional Model to their workplace communication.
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Many managers describe performance appraisal as the responsibility that they like least. Why is this so? What could be done to i
Dennis_Churaev [7]

Answer:

Many managers describe performance appraisal as the responsibility that they like least. Why is this so?

it might be so because managers may feel that performance appraisal is not as productive as other activities, or because they lack the personal skills, or the motivation, to engage in that activity.

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8 0
4 years ago
Discretionary fiscal policy
Furkat [3]
The answer is option "d", all of the above.
<span>Discretionary fiscal policy
</span><span>a. may reassure investors and consumers that the federal government will be able to avert a major economic downturn.

b. is not very effective in influencing real GDP during normal times because of time lags.

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3 years ago
Krizun Industries makes heavy construction equipment. The standard for a particular crane calls for 14 direct labor-hours at $16
Sergio [31]

Answer:

14,275= actual hours

Explanation:

Giving the following information:

The standard for a particular crane calls for 14 direct labor-hours at $16 per direct labor-hour.

During a recent period, 1,000 cranes were made.

The labor efficiency variance was $4,400 Unfavorable.

To determine the actual hours worked, we need to use the direct labor efficiency variance formula:

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14,275= actual hours

4 0
3 years ago
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