Answer:
The maximum price that should be paid for one share of the company today is $54.895
Explanation:
The price of a stock that pays a dividend that grows at a constant rate forever can be calculated using the constant growth model of Dividend discount model (DDM) approach. The DDM values a stock based on the present value of the expected future dividends. The formula for price today under this model is,
P0 = D1 / r - g
Where,
- D1 is the expected dividend for the next period or D0 * (1+g)
- r is the required rate of return
- g is the growth rate in dividends
SO, the maximum that should be paid for this stock today is:
P0 = 2.2 * (1 + 0.048) / (0.09 - 0.048)
P0 = $54.895 rounded off to $54.90
Answer:
The correct answer is $9187.5.
Explanation:
According to the scenario, the given data are as follows:
Asset cost = $140,000
Residual value = $42,000
Life period = 8 years
So, Annual depreciation can be calculated by using following method:
Annual depreciation = ( Asset cost - Residual value) ÷ Life period
= ($140,000 - $42,000) ÷ 8
= $12,250
As depreciation is to be recorded till Dec.31
So, total time period = Apr - Dec = 9 months
So, Depreciation expense till Dec.31 = $12,250 × (9 ÷ 12)
= $9,187.5
Hence, Depreciation expense till Dec.31 is $9,187.5.
Answer: 8.23%
Explanation:
Firstly, we will calculate the cost of debt which will be:
= Yield (1-Tax rate)
= 9% × (1-0.34)
= 9% × 0.66
= 5.94%
Then, the Cmcost of preferred stock will be:
= 7/(104-9.40)
= 7/(94.6)
= 7.39%
We will also get the value of the cost of equity which will be:
= (Dividend expected common/Price common) + growth rate
= (2.50/76) + 8%
= 3.29% + 8%
= 11.29%
For Debt:
Cost after tax: 5.94
Weight = 50%
Weighted cost = 5.94 × 50% = 2.97
For Preferred stock:
Cost after tax: 7.39
Weight = 1%
Weighted cost = 7.39 × 10% = 0.74
For Common equity
Cost after tax: 11.29
Weight = 40%
Weighted cost = 11.29 × 40% = 4.52
Weighted average cost of capital = 2.97 + 0.74 + 4.52 = 8.23%
Answer:
The EPS is approximately:
it can be any of them:
- if preferred dividends = $4,800,000, then EPS = $0.40 (option A)
- if preferred dividends = $720,000, then EPS = $1.76 (option B)
- if preferred dividends = $0, then EPS = $2 (option D)
EPS = (net income - preferred dividends) / outstanding shares = ($6,000,000 - preferred dividends) / 3,000,000 shares
The Price/Earnings ratio is approximately:
- if EPS = $0.40, then PE ratio = 12.5 (option D)
- if EPS = $1.76, then PE ratio = 2.84 (option C)
- if EPS = $2, then PE ratio = 2.5 (option B)
Price/earnings (PE) ratio = share price / EPS = $5 / EPS
EPS cannot be $1.80, since PE ratio = 2.78 and that is not an option.
Some companies have a higher share price for the same level of earnings. Why?
Some stocks like Amazon have a very low EPS, form any years its EPS was very low bu its stock price kept rising. The stock price is based mostly on potential future earnings, not current earnings. A company that is being liquidated might have a high EPS, but a very low stock price since it will stop operating soon.