Answer: A. Higher
B. The implication for Beta Co. is that because of its lower ROI, its ability to raise capital will be reduced.
Explanation:
a. What would you expect Alpha’s ROI to be relative to the ROI of Beta Co.? Explain your answer.
In this case, Alpha’s ROI to be relative to the ROI of Beta Co. will be higher. Since Alpha's investment cost is lower when compared to that of ‘Beta Co. while both companies have thesame operating income, then the return on investment of Alpha will then be higher than that of Beta due to the lower investment cost that Alpha incurred.
b. What are the implications of this ROI difference for a firm seeking to enter an established industry?
The implication for Beta Co. is that because of its lower ROI, its ability to raise capital will be reduced.
Answer:
stock price = (Div 1 / r - g1) x {1 - [(1 + g1) / (1 + r)]ⁿ} + (Div 1 / r - g2) x [(1 + g1) / (1 + r)]ⁿ⁻¹
Explanation:
since the company will first grow at g1 for n years, and then at g2 forever, we need to first determine the present value of the dividends growing at g1 for n years:
present value of the dividends during n = (Div 1 / r - g1) x {1 - [(1 + g1) / (1 + r)]ⁿ}
e.g. div = $2, n = 5 years, g1 = 8%, r = 12%
(2 / 12% - 8%) x {1 - [(1 + 8%) / (1 + 12%)]⁵} = 50 x 0.166263 = $8.31
now we find the formula to calculate the present value for the growing perpetuity g2 at n - 1 years:
= (Div 1 / r - g2) x [(1 + g1) / (1 + r)]ⁿ⁻¹
following the same example but changing g1 for g2, and g2 = 5%
= (2 / 12% - 5%) x [(1 + 5%) / (1 + 12%)]⁵⁻¹ = 28.5714 x 0.772476 = $22.07
we now add both parts to finish our example = $8.31 + $22.07 = $30.38
Answer:
Explanation:
The preparation of the Cash Flows from Operating Activities—Indirect Method is shown below:
Cash flow from Operating activities - Indirect method
Net income $149,000
Adjustment made:
Less: Gain on the sale of land -$12,000
Less: Increase in accounts receivable -$19,000
Less: Increase in inventory -$12,000
Less: Decrease in accounts payable -$39,000
Total of Adjustments -$82,000
Net Cash flow from Operating activities $67,000
Answer:
Paying attention to the trends that might impact your future career is called Futurecasting.
