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aliya0001 [1]
3 years ago
11

XYZ, Inc. just paid an annual per share dividend of $3.50. Dividends are expected to grow at a rate of 3% per year from here on

out. If the risk-free rate is 2.5%, the expected return on the market is 7% and the beta of the stock is 2, what is the most that you should be willing to pay for a share of this stock today?
Business
1 answer:
Agata [3.3K]3 years ago
3 0

Answer:

P0 = $42.4117 rounded off to $41.41

Explanation:

Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = D0 * (1+g) / (r - g)

Where,

D0 is the dividend paid  recentl

D0 * (1+g) is dividend expected for the next period /year

g is the growth rate

r is the required rate of return or cost of equity

First we need to calculate the required rate of return on this stock using CAPM.

Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.

The formula for required rate of return under CAPM is,

r = rRF + Beta * (rM - rRF)

Where,

rRF is the risk free rate

rpM is the market return

r = 0.025 + 2 * (0.07 - 0.025)

r = 0.115 or 11.5%

Using the constant growth of dividend formula,

P0 = 3.5 * (1+0.03)  /  (0.115 - 0.03)

P0 = $42.4117 rounded off to $41.41

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Answer:

c. the cash flows from investing activities section.

Explanation:

Basically there are three types of activities:

1. Operating activities: It includes those transactions which affect the working capital, and it records transactions of cash receipts and cash payments.

2. Investing activities: It records those activities which include purchase and sale of the fixed assets

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance.  

5 0
2 years ago
It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In f
dybincka [34]

Answer:

EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value.

It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In the fiscal year 2017, EagleCorp's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Myna Bird Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. Here EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value.

6 0
2 years ago
Jacque decides to open her own business and earns $50,000 in accounting profit for the first year. When deciding to open her own
jok3333 [9.3K]

Answer:

do they want you beta it is not the best of all 5th century but you can get it done with a place that you want and bottom up 4th or to be in your best of all the time when it gets out of control because of example a few of them are in fact so you can find a place where it can be a good place for you

4 0
2 years ago
Suppose a group of people read an article on capital punishment. Prior to reading the article, 60% of the members of the group w
Arturiano [62]

Answer:

According to studies of human decision-making, the most likely is:

c. After reading the article, all members of the group oppose capital punishment.

Explanation:

The article, provided for reading by supporters and opposers, will likely sway the 40% of the group, who are initially supportive of capital punishment, to now oppose capital punishment,especially if the article critically opposes capital punishment.  There is no way majority of the group will support capital punishment.  Therefore, options a and b are incorrect.  For option d, after reading the article, the opinions of some opposers and supporters may shift either way.  They will not remain the same as before.  This rules out option d, leaving only option c as the correct option.

7 0
3 years ago
Selected information from the accounting records of Ellison Manufacturing Company follows:
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Answer:

b. 94.9

Explanation:

The computation of the number of days' sales in average inventories is shown below:

Day inventory outstanding = (Beginning inventory + ending inventory) ÷ 2  ÷ cost of goods sold × total number of days in a year

= ($672,000 + $576,000) ÷ 2 ÷ $2,400,000 × 365 days

= ($624,000 ÷ $2,400,000 ) × 365 days

= 94.90 days

Simply we take the average of inventory and divide from the costs of goods sold

All other information which is given is not relevant. Hence, ignored it

7 0
2 years ago
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