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NISA [10]
3 years ago
7

he next dividend payment by Savitz, Inc., will be $5.05 per share. The dividends are anticipated to maintain a growth rate of 5

percent forever. If the stock currently sells for $43 per share, what is the required return
Business
1 answer:
VashaNatasha [74]3 years ago
3 0

Answer:

16.74%

Explanation:

Current Price = Expected Dividend / (Required Return - Growth Rate)

Required Return = (Expected Dividend / Current Price) + Growth rate

Required Return = ($5.05 / $43) + 5%

Required Return = 0.1174419 + 0.05

Required Return = 0.1674419

Required Return = 16.74%

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Laura understands the reasons her boss assigned other team members to the better projects but thinks the way he told her about i
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In working on a bid for project you have determined that $245,000 of fixed assets will be required and that they will be depreci
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Answer:

Question 1:

required investment $245,000

depreciation expense per year = ($245,00 - $23,200) / 5 = $44,360

you will also require $15,000 in working capital

annual cash costs = $68,500

what is the minimum amount of cash sales for accepting the project:

net cash flow₁ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14 = (0.65SR - $28,999) / 1.14 = 0.5702SR - $25,437.72

net cash flow₂ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14² = (0.65SR - $28,999) / 1.14² = 0.5002SR - $22,313.79

net cash flow₃ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14³ = (0.65SR - $28,999) / 1.14³ = 0.4387SR - $19,573.50

net cash flow₄ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360} / 1.14⁴ = (0.65SR - $28,999) / 1.14⁴ = 0.3849SR - $17,169.74

net cash flow₅ = {[(sales revenue - $68,500 - $44,360) x 0.65] + $44,360 + $15,000} / 1.14⁵ = (0.65SR - $13,999) / 1.14⁵ = 0.3376SR - $7,270.64

NPV = -initial outlay + cash flows

NPV = 0

initial outlay = cash flows

$260,000 = 0.5702SR - $25,437.72 + 0.5002SR - $22,313.79 + 0.4387SR - $19,573.50 + 0.3849SR - $17,169.74 + 0.3376SR - $7,270.64

$260,000 = 2.2316SR - $91,765.39

$351,765.39 = 2.2316SR

sales revenue = $351,765.39 / 2.2316 = $157,629.23

the closest answer is B = $155,119, but its NPV will be negative.

<u>so we have to select C = $162,515.75 that results in an NPV = $10,887. </u>

Question 2:

<u>The correct answer is D. return on equity will increase.</u>

If you lower your costs while your sales remain the same, your profits will increase as well as your ROE.  

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