Find the EAR in each of the following cases (Use 365 days a year. Do not round intermediate calculations and round your final an
1 answer:
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Answer:
cost of capital of common stock = 13.38 %
Explanation:
given data
common stock sell = $145
fee charge= 5%
face value = $145 per share
dividend = 7%
growth rate = 8%
to find out
Uber cost of capital of common stock
solution
we get here cost of capital of common stock that is express as
cost of capital of common stock = + g ....................1
here D1 is dividend at end year and Po is today price and f is flotation rate and g is growth rate
so we get here
cost of capital of common stock = + 0.08
cost of capital of common stock = 0.133763
cost of capital of common stock = 13.38 %
Answer:
Explanation:
Given that,
expects a return of $100,000 in the first year
loss of $80,000
probability that the store will be a success is 0.6
research will cost $20,000
0.6 probability that this information will be favorable
store will be a success increases to 0.9
store will be a success reduces to only 0.2
<h3>a) Decision tree is attached</h3>EMV= (payoff of first outcome) * (probability of first outcome) + (payoff of second outcome) * (probability of second outcome) + (payoff of third outcome) * (probability of third outcome)
EMV(node 1) = EMV(new store)
= ($100,000 * 0.6) + (-80,000 * 0.4)
=$28,000
EMV (node 2) = EMV (no store)
= $0
EMV (node 3) = EMV ( new store and favourable research)
= ($100,000 * 0.9) + (-80,000 * 0.1)
=$82,000
EMV (node 4) = EMV ( no store and favourable research)
= $0
EMV (node 5) = EMV ( new store and unfavourable research)
= ($100,000 * 0.2) + (-80,000 * 0.8)
= -$44,000
EMV (node 6) = EMV ( no new store and unfavourable research)
= $0
B) Here we compare EMV of not conducting the market research ans EMV of conducting the market research and the maximum EMV shall be taken for decision making
- Here the EMV of conducting the market research is higher than not conducting
Hence, the investor can go to market research test. If result is positive, she can invest in the store, if negative she can stop the proposal.
