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
kondor19780726 [428]
3 years ago
6

A company has 1000000 shares outstanding trading at $15 a piece. Managers believe that the discount rate appropriate for the ris

k borne is 15% and total cash flows, expected to be $1 million next year, will rise by 5% per year indefinitely. Discuss a strategy that is beneficial to the current shareholders.
Business
1 answer:
denpristay [2]3 years ago
6 0

Answer:

Explanation:

Knowing the value of the equity and establishing the intrinsic worth of the share may help you develop a perfect strategy that will benefit the current shareholders.

Value of the equity =  Cashflow÷(discount rate - growth rate)

= $1,000,000 ÷ (15%-5%)  

= $1,000,000 ÷ (10%)  

= $10,000,000

Intrinsic value per share = Value of the equity ÷ Shares outstanding

= $10,000,000 ÷ 1,000,000

= $10

For the share, The intrinsic value = $10

However, since the current trading share price is $15, then we can posit that the share price is over-valued.

As a result, the perfect strategy that will be beneficial to the shareholders is for the current shareholders to sell the shares (short selling at a high price and purchasing at a low price).

You might be interested in
Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. However, the risk of Stock A
MrRissso [65]

Answer:

13.70%

Explanation:

The expected return of a portfolio is said to be the weighted average of the returns of the individual components,

Given that:

Stock A has an expected return = 17.8%

Stock B has an expected return = 9.6%

the risk of Stock A as measured by its variance is 3 times that of Stock B.

If the two stocks are combined equally in a portfolio;

Then :

The weight of both stocks will be 50% : 50 %

So the  portfolio's expected return can be determined as follows:

Expected return for stock A  = 50% × 17.8%

Expected return = 0.50 × 17.8%

Expected return = 8.9 %

Expected return for stock B = 50 % × 9.6 %

Expected return for stock B = 0.50 × 9.6%

Expected return for stock B = 4.8%

Expected return of the portfolio = summation of the expected return for both stocks

Expected return of the portfolio = 8.9 %  + 4.8%

Expected return of the portfolio =  13.70%

3 0
3 years ago
The Muffin House produces and sells a variety of muffins. The selling price per dozen is $ 18​, variable costs are $ 5 per​ doze
Vlad1618 [11]

Answer:

$7,222

Explanation:

Given that,

Selling price per dozen = $18​

Variable costs = $5 per​ dozen

Total fixed costs = $ 5,200

Contribution margin per dozen:

= Selling price per dozen - Variable costs per dozen

= $18​ - $5

= $13

Contribution margin ratio:

= (Contribution margin ÷ Selling price per dozen) × 100

= ($13 ÷ $18) × 100

= 0.72 × 100

= 72%

Break-even sales in​ dollars:

= Total fixed costs ÷ Contribution margin ratio

= $5,200 ÷ 0.72

= $7,222

6 0
3 years ago
The purpose of a balance sheet is to report the ______.
bagirrra123 [75]

Answer:

c. financial position of a business at a particular point in time

Explanation:

A balance sheet is a financial statement that shows the financial position of a business at a particular point in time. It lists the assets, liabilities, and owner's equity.

I hope my answer helps you

3 0
3 years ago
The developing country of alpha had a rule that none of its factories could be owned by companies from the developed country of
hjlf
<span>When the developing country alpha breaks the rule of factories not being owned by the companies of developed country beta would imply that alpha is in a vulnerable position in its trade. So this means this would be an example of decline in trade and investment barriers.</span>
4 0
3 years ago
An OSHA compliance inspector arrives at a meat processing unit and presents his credentials to the unit manager. The manager, ho
NISA [10]

Answer:

The compliance officers is to provide an inspection warrant before entering the work site.

Explanation:

OSHA is an abbreviation for Occupational Safety and Health Administration. This are compliance safety and health officers inspectors committed to strong, fair, and effective enforcement of safety and health requirements in the workplace at every time. They are trained, experienced and backed by law to ensure industrial hygienists, safety, compliance with OSHA requirements and help employers and workers reduce on-the-job hazards and prevent injuries, illnesses, and deaths in the workplace.  

OSHA conducts inspections without advance notice and employers have the right to ask the compliance officers to provide an inspection warrant before entering the worksite.

5 0
3 years ago
Other questions:
  • Lightning Cycles, Inc., makes Lightning-brand motorcycles and accessories, which are distributed to authorized dealers, includin
    7·1 answer
  • The following inventory valuation errors have been discovered for Knox Corporation:
    11·1 answer
  • If the same patient has an office visit and the charge is 120.00. the patient has met the annual deductible. if medicare allows
    10·2 answers
  • The following information describes a​ company's usage of direct labor in a recent​ period: Actual direct labor hours used 33 co
    8·1 answer
  • What step in the investigative process would the development of timelines and interpretation of burn patterns be related to?
    15·1 answer
  • At the beginning of the current season on April 1, the ledger of Kokott Pro Shop showed Cash $3,800; Inventory $4,300; and Commo
    9·1 answer
  • Give reasons to show why management is inexact science and not an exact science?​
    9·1 answer
  • Provide an example of two companies that have built in effective co-opetition. Briefly explain the benefit of the relationship d
    11·1 answer
  • QUESTION 8 of 10: True or False: Freestanding locations have lots of direct competition
    9·1 answer
  • A small open economy with a fixed exchange rate e2 is initially at equilibrium A with LM*1 and equilibrium output Y1. If there i
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!