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levacccp [35]
3 years ago
10

Investors require an after-tax rate of return of 10% on their stock investments. Assume that the tax rate on dividends is 30% wh

ile capital gains escape taxation. A firm will pay a $2 per share dividend 1 year from now, after which the firm's stock is expected to sell at a price of $30.
Required:
a. Find the current price of the stock.
b. Find the expected before-tax rate of return for a 1-year holding period.
c. Now suppose that the dividend will be $3 per share. If the expected after-tax rate of return is still 10%, and investors still expect the stock to sell at $20 in 1 year, at what price must the stock now sell?
d. What is the before-tax of return? Why is it now higher than in part (b)?
Business
1 answer:
IgorC [24]3 years ago
6 0

Answer:

a. $28.5

b. 12.28%

c.  $29.18

d. 13.09%

Explanation:

a. let current price = p

p*1.10 = 2(1-0.3)+30

= 1.4+30/1.10

= 31.4/1.10

= 28.5

the current price of the stock is approximately 28.5 dollars

b. (30+2 /28.5)-1

= 32/28.5 - 1

= 0.1228

= 12.28%

expected before tax rate is 12.28%

c. 3(1-0.3)+30 / 1.10

= 3*0.7+30/1.10

= $29.18

d. before tax rate of return

= (3$ + 30-29.18)/29.18

= 0.1309

= 13.09%

it is now higher here given that given that a greater dividend causes more tax burden.

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You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.08 and the total
Luden [163]

Answer: 0.92

Explanation:

Beta is a measure of riskiness and Market beta is always 1.

The total portfolio therefore has a beta of 1.

Portfolio Beta is weighted average of the betas of the composite stocks.

The stocks are equally invested in so their weights are 0.5.

Assume the beta needed is x.

(0.5 * 1.08) + (0.5 * x) = 1

0.54 + 0.5x = 1

0.5x = 1 - 0.54

x = 0.46/0.5

= 0.92

4 0
3 years ago
The owner of a national software company has been watching current economic information for the past two quarters and a rapid ri
LuckyWell [14K]

The owner is making this long-run decision based on his rational expectations of economic growth to meet future demands.

<h3 /><h3>What are long term decisions?</h3>

They are a strategic process that means designing an economic scenario based on perspectives, vision and organizational goals, with short-run decisions being the actions present to achieve long-run objectives.

Therefore, the owner is making long-run decisions in line with his expectations for the future of the business by looking at the current economic scenario.

Find out more about long-run decisions here:

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4 0
2 years ago
Suppose demand and supply are given by Qd = 60 - P and Qs = 1.0P - 20.
seraphim [82]

Answer:

a.  Equilibrium quantity: 40 units;  Equilibrium price: $40.

b. Quantity demanded: 10 units; Quantity supplied: 30 units;  Surplus: 20 units.

c.  Quantity demanded: 9 units; Quantity supplied: 31 units;  Shortage: 22 units.

Explanation:

a. The equilibrium quantity occurs when the demanded and supplied quantity are the same, the price for which this situation happens is:

60 - P = 1.0P - 20.\\2P=80\\P=\$40

At an equilibrium price of $40, the equilibrium quantity is:

Q = $40 -20 = 40\ units

b. At a price of $50, the quantity demanded, the quantity supplied, and the magnitude of the surplus are, respectively:

Q_d = 60 - P =60-50 =10\ units\\Q_s = 1.0P - 20=50-20 = 30\ units\\Surp = Q_s - Q_d = 30 -10 = 20\ units

c. At a price of $29, the quantity demanded, the quantity supplied, and the magnitude of the shortage are, respectively:

Q_d = 60 - P =60-29 =31\ units\\Q_s = 1.0P - 20=29-20 = 9\ units\\Short = Q_d - Q_s = 31 -9 = 22\ units

8 0
3 years ago
When Frank buys his own house, he would like to have a home theater system and a jacuzzi. He plans to save enough money in the n
Basile [38]

Answer:

c

Explanation:

he wants all of those things

5 0
3 years ago
According to AU-C 315, Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, not all co
ankoles [38]

Answer:

The correct answer is B. Maintenance of control over unused checks.

Explanation:

Risk of material misstatement is the risk that the financial statements contain material misstatements prior to the performance of the audit. The risk comprises two components, described as follows, in the statements:

Inherent risk - Susceptibility of a statement about a type of transaction, accounting balance or other disclosure of information to a misstatement that could be material, either individually or in aggregate with other inaccuracies, before taking into account the possible corresponding controls.

Control risk - Risk that an error that could exist in a statement about a type of transaction, accounting balance or other information relief, and that could be material either individually or in aggregate with other inaccuracies, is not prevented, or detected and corrected in a timely manner, by the entity's internal control system.

5 0
3 years ago
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