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jekas [21]
3 years ago
15

In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five y

ears or so, then find the "terminal" stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.75. The dividends are expected to grow at 21 percent over the next five years. In five years, the estimated payout ratio is 35 percent and the benchmark PE ratio is 33.
Business
1 answer:
Lyrx [107]3 years ago
7 0

Answer:

  1. $427.97
  2. $223.22

Explanation:

1. Target stock price in 5 years

First find the dividend in the 5th year;

= 1.75 * ( 1 + 21%)⁵

= $4.5390493

The calculate Earnings per Share;

= Dividend in 5th year/ Payout ratio

= 4.5390493 / 35%

= $12.968712

Now calculate the Share price;

= PE ratio * EPS

= 33 * 12.968712

= $427.97

2. Stock Price today assuming required return rate of 15%

This is the present values of all the dividends in addition to the stock price in 5 years.

= \frac{1.75 * 1.21}{1.15} + \frac{1.75 * 1.21^{2} }{1.15^{2} } + \frac{1.75 * 1.21^{3} }{1.15^{3}} + \frac{1.75 * 1.21^{4} }{1.15^{4} } + \frac{1.75 * 1.21^{5} }{1.15^{5} } + \frac{427.967 }{1.15^{5} }\\\\= 1.841304 + 1.9373724 + 2.0384526999 + 2.374451111856 + 2.2567097149 + 212.775235875\\\\= 223.2235258

= $223.22

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A $ 5000 bond with a coupon rate of 6.7​% paid semiannually has eight years to maturity and a yield to maturity of 7.8​%. If int
prohojiy [21]

Answer:

As a result of an increase in the YTM, the price of the bond will fall $4677.19 from to $4593.67

Explanation:

The bonds are valued or priced based on the present value of annuity of interest payments and the present value of the principal. Based on the YTM of 7.8% the bonds are priced at,

coupon payment = 5000 * 0.067 *1/2  =  $167.5

Semiannual YTM = 7.8 *0.5  =  3.9%

Semi annual periods to maturity = 8 * 2  =  16 periods

Old Price = 167.5 * [( 1 - (1 + 0.039)^-16  + 5000 / (1+0.039)^16

Old Price = $4677.19

New semiannual YTM = 8.1% / 2  =  4.05%

New Price = 167.5 * [( 1 - (1+0.0405)^-16) / 0.0405] + 5000 / 1.0405^16

New Price = $4593.67

7 0
3 years ago
HELP!!!
Maksim231197 [3]
The answer is:

B Because idk
4 0
3 years ago
Read 2 more answers
A building that settles unevenly after an earthquake is evidence of _____.
Viefleur [7K]
The Answer Is In Fact "Liquefaction".

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4 0
3 years ago
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Granite Construction Company is considering selling excess machinery with a book value of $175,000 (original cost of $315,000 le
aleksandr82 [10.1K]

Answer:

Sell option is preferred.

Explanation:

The decision whether to lease out the machinery that is surplus to requirement or sell outrightly is dependent on the differential analysis performed below.In the analysis I have compared the profits under each option in order to guide the final decision:

Differential analysis as at 7th November(Sale or lease option)                      

                                                                         Sell option              lease option

revenue   from sell/lease option                        $180,000                 $200,000

Brokerage commission(5%*$180,000)                 ($9,000)                        -

costs of repairs,insurance and property taxes          -                        ($34,400)

Profits                                                                        $171,000              $165,600

The sell option provides $5400($171,000-$165,600) than the lease option,hence the sell option is preferred.

One would have expect that the lease option since it has more revenue to preferable but the costs of repairs,insurance and property taxes were also on the high side

   

5 0
3 years ago
Identify the correct order of the four steps used to prepare a production cost summary (report). 1)Summarize the cost flow of ph
Veronika [31]

Answer:

The answer is "Option C".

Explanation:

The Costs of production relate to the price of a company producing or producing a service, which can include the range of expenditures, like labor, manufactured goods, supplies of items, and expenses. It has mainly four steps that can be defined as follows:

  • Complete the physical unit flow.
  • Measure the production unit's equivalent.
  • Compare the value per unit for output equivalent.
  • Assign costs to finished units and manufactured units.

5 0
2 years ago
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