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
Kryger [21]
2 years ago
15

Crystal Glasses recently paid a dividend of​ $2.70 per​ share, is currently expected to grow at a constant rate of​ 5%, and has

a required return of​ 11%. Crystal Glasses has been approached to buy a new company. Crystal estimates if it buys the​ company, its constant growth rate would increase to​ 6.5%, but the firm would also be​ riskier, therefore increasing the required return of the company to​ 12%. Should Crystal go ahead with the purchase of the new​ company?
Business
1 answer:
skelet666 [1.2K]2 years ago
6 0

Answer:

The purchase of the new company increases the price per share of Crystal from $47.25 to $52.28.As the price of the share will increase from purchase of the new company, Crystal should go ahead with the project.

Explanation:

To determine whether to purchase the company or not, we first need to calculate the current share price or fair value of share. We will use the constant growth model of DDM to estimate the current fair value as the dividends are expected to grow at a constant rate. It bases the value of a share on the present value of the expected future dividends.

The share price today can be calculated as,

P0 = D1 / r - g

Where,

  • D1 is the dividend expected for the next period
  • r is the required rate of return
  • g is the growth rate in dividends

P0 = 2.7 * (1+0.05)  /  (0.11 - 0.05)

P0 = $47.25

If the purchase of the new company increases the fair value of the share more than its current level, then Crystal Glasses should go ahead with the purchase. We estimate the price per share if the new company is purchased as,

P0 = 2.7 * (1+0.065)  /  (0.12 - 0.065)

P0 = $52.28

As  the price of the share will increase from purchase of the new company, Crystal should go ahead with the project.

You might be interested in
Which of the following is true? When companies employ push-down accounting:A) the subsidiary revalues assets and liabilities to
kondor19780726 [428]

Answer: The correct answer is A) The subsidiary revalues assets and liabilities to their fair values as of the acquisition date.

Explanation: Push down accounting is used when a company buys another company. This type of accounting revalues the assets and liabilities of the acquired company at a fair value on the date of acquisition.

4 0
3 years ago
The market for chewing gum is in equilibrium with a current price of 50 cents per pack and a quantity of 100,000 packs per day.
frez [133]

Answer:

A) an increase in the price of other kinds of candy

Explanation:

If the price of substitute products (other types of candy) increases, then the suppliers of chewing gum can increase their price without the quantity demanded decreasing. If the decrease in the price of chewing gum is smaller than the increase in the price of substitute products, the quantity demanded will increase.

If there was a price increase of the main ingredients used to produce chewing gum, then the supply curve would shift to the left (option B is wrong).

If the workers signed an agreement that lowered their wages, then the supply curve would shift to the right (option C is wrong).

A decrease in the number of young people in the market would decrease the quantity demanded for chewing gum, which in turn would decrease the equilibrium price (option D is wrong).

A decrease in income would also decrease the quantity demanded, which would in turn decrease the equilibrium price (option E is wrong).

5 0
3 years ago
Crane Company incurred the following costs for 88000 units: Variable costs $528000 Fixed costs 392000 Crane has received a speci
Anton [14]

Answer:

The minimum price is $6.8

Explanation:

Giving the following information:

Crane Company incurred the following costs for 88000 units: Variable costs $528000 Fixed costs 392000 Crane has received a special order from a foreign company for 3000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $2400 for shipping.

Because it is a special order and there is unused capacity, we will not have into account the fixed costs.

Unitary cost= (528,000/88,000) + (2,400/3,000)= $6.8 per unit

The minimum price is $6.8

7 0
3 years ago
Choose all that apply. Select all the laws and regulations that protect your bank account. Truth in Savings Act Electronic Fund
qaws [65]
I need to know what the chocies are so i can answer your question

5 0
3 years ago
Read 2 more answers
Read the scenario:
Mashcka [7]
Determine how much each month she can afford
6 0
3 years ago
Other questions:
  • In the five C's of the marketing mix, Product is changed to what? A. Cost B. Convenience C. Consumer D. Community Please select
    9·1 answer
  • The $1,000 par value bonds of uptown tours have a coupon rate of 6.5 and a current price quote of 101.23. what is the current yi
    7·1 answer
  • ​Smokey's Sandwich Shoppe paid​ $3,000 for a 2minusyear insurance policy on March​ 1, 2018. The accountant forgot to make any ad
    9·1 answer
  • For the purpose of process analysis, which of the following measures would be considered an appropriate flow unit for analyzing
    10·1 answer
  • Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable cos
    5·1 answer
  • A company has budgeted fixed overhead of $1.00 per hour at expected capacity of 5,000 units which has a standard quantity of 2 h
    12·1 answer
  • What does making a good decision mean?? How can I make a good decision?
    8·1 answer
  • If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is
    7·1 answer
  • professional university teaches a large range of undergraduate courses. it is interested in determining the cost equation for th
    5·1 answer
  • Which type of investment works by taking investors’ money, investing that collective money in stocks, bonds, and other investmen
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!