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Thepotemich [5.8K]
3 years ago
12

DFB, Inc. expects earnings next year of $5 per share, and it plans to pay a $3 dividend to shareholders (assume that is one year

from now). DFB will retain $2 per share of its earnings to reinvest in new projects that have an expected return of 15% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. If DFB's equity cost of capital is 12%, what price would you estimate for DFB stock
Business
1 answer:
Novay_Z [31]3 years ago
8 0

Answer:

$50

Explanation:

The price of the stock can be estimated using the constant growth dividend model

the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

growth rate = retention rate x ROE  

Retention rate = 1 - payout ratio

ROE = Return on equity = 15%

Payout ratio = dividend per share / earning per share

Payout ratio = 3/5 = 0.6

Retention rate = 1 - 0.6 = 0.4

growth rate = 0.4 x 15 = 6%

Price of the stock = 3 / (0.12 - 0.06)

3/0.06 = $50

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I think hold on but that’s just me lol
8 0
3 years ago
Read 2 more answers
The Sedgwick Company estimates sales of a new product at 5,000 units and $3.00 per unit. Management feels the sales quantity is
Soloha48 [4]

Answer:

B) $12,825

Explanation:

In order to calculate the worst case scenario of sales first we need to calculate the worst case for sales of units.

The Company estimates that 5,000 units will be sold with a 10 percent plus-or-minus range. So, let calculate the worst case for the sale of units, in this case being 90% of the 5,000 unit estimate. Calculate 90% of 5,000, and this gives us 4,500 units as the worst case scenario.

To calculate the the worst case scenario for price, lets use the $3.00 per unit estimated by the Company, and apply the same concept, however, taking into account that sales price has a 5 percent plus-or minus range. So we caclulate %95 of $3.00, and this gives us $2.85 as our worst case scenario for price.

Now, we take our worst case scenario for amount of units and price:

4,500 units x $2.85 = $12,825

$12,825 is the total dollar amount for the worst case scenario of this product.

5 0
3 years ago
Devin had worked for his company for several years and was considered to be a politically savvy employee. After earning several
alexgriva [62]

Answer:

informal organization.

Explanation:

An informal organization is the social structure of an institution in which it works  differently from the formal type of organization. In this form of organization social relations are built among the members of same organization or institution. This form of organization functions differently from formal type of organization as it involves building relationships, communities, social network, and emotional connection.

<u>In the given scenario, Nina and Devin shares the informal organizational form of human side. They both work in the same organization and have developed a relationship. Nina has made use of the informal organization to push her agenda. If she would have taken formal organizational form then she would have to work hard to push her agenda and follow the organizational pattern</u>.

Thus the correct answer is informal organization.

8 0
4 years ago
On January 1, 2021, Consolidated Company purchased 100% of the common stock Avergy Industries for $720,000. On that date, Avergy
Dahasolnce [82]

Answer:

b. $ 50,000

Explanation:

Investment cost                    

720000

Book value of net asset

100000

420000

--------------

520000

Excess

200000

Allocated as follows

Land and equipment                              50000

overvaluation of bonds payable            40000

Undervaluation of inventory                    60000

Total                                                          150000

Un allocated amount    

Goodwill                                                    50000

Total                                                        200000

4 0
3 years ago
Wims, Inc., has current assets of $3,900, net fixed assets of $26,500, current liabilities of $3,400, and long-term debt of $7,5
STALIN [3.7K]

Answer:

equity = $19500

Explanation:

Given data:

current assets $3900

net fixed assets $26,500

current liabilities $3400

debt = $7500

Total liabilities = current liabilities + long term debt

                         = 3400 + 7500 = $ 10,900

Total assets = current assets + net fixed assets

                     = 3900 + 26,500 = $30,400

We know

total assets  = total liabilities + equity

30400 = 10900+ equity

equity = $19500

8 0
3 years ago
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