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vitfil [10]
3 years ago
14

Use the information about Company X below to help answer this question:

Business
1 answer:
Harman [31]3 years ago
5 0

Answer:

b. $12.67

Explanation:

The value of the company is the present value of its future dividends payments discounted at the company's cost of equity.

Year 1 dividend=current year dividend*(1+12%)

Year 1 dividend=$60m*(1+12%)=$67.20m

Year 2 dividend=$67.20m*(1+12%)=$75.26m

Year 3 dividend=$75.26m*(1+12%)=$ 84.30m  

Year 4 dividend=$ 84.30m*(1+12%)=$ 94.41m

Year 5 dividend=$ 94.41m*(1+12%)=$105.74m

the terminal value of dividends=Year 5 dividend*(1+terminal growth rate)/(cost of equity)

the terminal value of dividends=$105.74m*(1+8%)/(16%-8%)=$1427.49m

value of the company=$67.20/(1+16%)^1+$75.26/(1+16%)^2+$ 84.30/(1+12%)^3+$ 94.41/(1+16%)^4+$105.74/(1+16%)^5+$1427.49/(1+16%)^5

value of the company=$956.00 m

value of one share=$956.00 m/75m=$12.75(the correct option is $12.67 the difference is due to rounding error)

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Answer:

Explanation:

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Answer:

b. Electricity usage over a 24 hour period

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In the given case, Electricity represents seasonal demand in the sense that during day time, when several tasks are to be performed which are dependent on electricity, the usage is most and such usage falls as one moves towards the evening.

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4 years ago
Cost of Debt KatyDid Clothes has a $150 million (face value) 30-year bond issue selling for 104 percent of par that carries a co
Ivahew [28]

Answer:

the annual pre-tax cost of debt is 10.56%

Explanation:

the beore-tax component cost of debt will be the actual market rate of the bonds, as they offer an interest rate of 11% but are selling at 104 points not at par thus, there is a difference between the rates.

We solve for the rate which makes the coupon and maturity 104

with excel or a financial calculator

PV of the coupon payment

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 5.500 (100 x 11%/2)

time 60 (30 years x 2 payment per year)

rate <em>0.052787474</em>

5.5 \times \frac{1-(1+0.0527874736258532)^{-60} }{0.0527874736258532} = PV\\

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PV of the maturity

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   100.00

time   60.00

rate  <em>0.052787474</em>

\frac{100}{(1 + 0.0527874736258532)^{60} } = PV  

PV   4.57

<em><u>Adding both we should get 104 which is the amount the bonds is selling:</u></em>

PV coupon $99.4338 + PV maturity  $4.5662 = $104.0000

The rate is generated using goal seek or wiht a financial calculator.

This rate is a semiannual rate, so we multiply by 2 to get the annual cost of debt:

0.052787474 x 2 = 0.105574947

The cost of debt for the firm is 10.56%

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