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
loris [4]
2 years ago
12

The risk-free rate of return is 2.5 percent; the expected rate of return on the market is 7 percent. Stock X has a beta coeffici

ent of 1.3, an earnings and dividend growth rate of 4 percent, and a current dividend of $1.40. If the stock is selling for $35, what should you do based on CAPM and CDGM
Business
1 answer:
zvonat [6]2 years ago
4 0

Answer:

  • Stock is overpriced/ overvalued.
  • Sell if you own it.
  • Don't buy if you don't.

Explanation:

Use CAPM to find the required return on the stock:

Required return = Risk free rate + beta * ( Market return - risk free rate)

= 2.5% + 1.3 * (7% - 2.5%)

= 8.35%

Price based on Constant Dividend Growth Model (CDGM):

Price = Next dividend / (Required return - growth rate)

Next dividend = 1.40 * ( 1 + 4%)

= $1.456

Price = 1.456 / (8.35% - 4%)

= $33.47

<em>Stock is selling for $35. It is overvalued. Don't buy the stock. Sell if you have the stock. </em>

You might be interested in
Consumer​ surplus:
elena-14-01-66 [18.8K]

Consumer surplus is the difference between the maximum amount the consumer is willing to pay for the price of the good and the price that was actually paid by the consumer or commonly known as the current market price. The price that the consumer is willing to pay is determined by the demand curve in the market.

8 0
3 years ago
Read 2 more answers
Evergreen Air Center is the world's biggest parking lot for unwanted aircraft. Airlines pay a monthly fee from $750 to $5,000 to
anyanavicka [17]

Answer:

a Competency

Explanation:

Competency refer to set of capabilities an enterprise possesses relating to performance of a task in an efficient manner in a given specific situation.

Competencies are the sum total of skills, knowledge and capabilities.  These are developed over time with application of skills and knowledge.

In the given case, Evergreen reaps benefits with respect to parking area for unwanted aircraft owing to space it possesses and the climate of the location which protects the aircraft from dust and rusting.

This represents a case of competency which has built up over time owing to a capability which has emerged out of application of skills, knowledge and environmental advantage.

4 0
3 years ago
A company reports the amounts below in its financial statements. Net cash flow from operating activities $37,570 Total net cash
balandron [24]

Answer:

Ratio will be 0.92

So option (A) will be the correct option

Explanation:

We have given net cash flow from operating activities = $37570

So net operating cash flow = $37570

Current liabilities at the bugging of the year = $38400

Current liabilities at the end of the year = $43200

So average current liabilities =\frac{38400+43200}{2}=$40800

We have to find the ratio of operating cash flow to current liabilities

So ratio will be =\frac{37570}{40800}=0.92

So option (A) will be the correct option

3 0
3 years ago
Rachel receives employer-provided health insurance. The employer's cost of the health insurance is $5,600 annually. What is her
kati45 [8]

Answer:

$4,424

Explanation:

Calculation for her employer's after-tax cost of providing the health insurance

Using this formula

After-tax cost =Annually employer's cost of health insurance -(=Annually employer's cost of health insurance*Marginal tax rate)

Let plug in the formula

After-tax cost =$5,600- ($5,600 × 21%)

After-tax cost =$5,600- $1,176

After-tax cost =$4,424

Therefore her employer's after-tax cost of providing the health insurance is $4,424

8 0
3 years ago
Do you believe that managers should be given more autonomy to make personnel decisions such as hiring, appraising, and compensat
Tpy6a [65]

Answer:

The correct answer is: managers should be given less autonomy to make personnel decisions such as hiring, appraising, and compensating subordinates.

Explanation:

The function of management consists of a series of resources that must be observed in order to achieve organizational goals, therefore it is allowed to delegate important functions such as personnel management to a person who in turn must be accountable; For this reason, management must engage in extremely important functions such as obtaining clients, establishing sales strategies, positioning, etc., while the people in charge of each department perform their functions according to the internal regulations of the organization and the other guidelines established in order to ensure that such resources are aligned and allow the achievement of organizational goals.

5 0
3 years ago
Other questions:
  • What is NOT a reason to reconcile a checking account when the account statement comes?
    10·1 answer
  • The lag problem associated with fiscal policy is due mostly to Group of answer choices the time it takes for changes in governme
    9·1 answer
  • A for-profit institution that works with large companies and corporations to manage deposits, loans, and investments is known as
    7·1 answer
  • Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units, give or take 5 percent. The expected
    9·1 answer
  • A hospital conducted a study of the waiting time in its emergency room. The hospital has a main campus and three satellite locat
    15·1 answer
  • Lyman's business has grown to 400 employees with annual revenues of $15 million. He would like to expand further but needs anoth
    10·1 answer
  • A back-up plan is a (an)...
    15·1 answer
  • Sheffield Corp. developed the following data for the current year: Beginning work in process inventory $ 216000 Direct materials
    14·1 answer
  • following the rational rule for sellers, how does output for a seller who has market power compare to output for a seller who do
    5·1 answer
  • China's government is encouraging companies to __________. View Available Hint(s)for Part D China's government is encouraging co
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!