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k0ka [10]
3 years ago
5

Fleury Security Limited (FSL) is projected to have earnings per share (EPS) of $3.50 next year, and the firm’s dividends are 30%

of earnings. Investors have a required return on FSL shares of 12.4%. The company has a profit margin of 10%, total asset turnover of 0.9, and total debt ratio of 0.4.
a) Calculate the ROE of the company.
b) Calculate the price of FSL shares.
c) How much of that price is due to future growth opportunities?
Business
1 answer:
ra1l [238]3 years ago
7 0

Answer and Explanation:

The computation is shown below:

a) For ROE of the company

As we know that

Debt ratio = 1 - (1 ÷  Equity multiplier)

0.4 = 1 - (1 ÷ Equity multiplier)

(1 ÷ Equity multiplier) = 0.6

Equity multiplier = 1 ÷ 0.6

= 1.6667

Now ROE is  

ROE = Net Profit Margin × Total Asset Turnover × Equity multiplier

= 10% × 0.9 × 1.6667

= 15%

b) For the Price of FSL shares

Expected Dividend next year (D1) = Projected EPS × Dividend payout ratio

= $3.50 × 30%

= $1.05  

And, Required Return(ke) = 12.4%

Growth Rate(g) = ROE × (1 - Dividend payout ratio)

= 15% × (1 - 0.30)

= 10.5%

And finally the Price of STock:-

= D1 ÷ (ke - g)

= $1.05 ÷ (0.124 - 0.105)

= $55.26

C. For  Present Value of Growth Opportunity(PVGO)

As we know that

Present Value of Growth Opportunity(PVGO) = Stock Price - (EPS ÷ Ke)

= $55.26 - ($3.50 ÷ 12.4%)

= $27.03

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Answer:

variable per unit        $  89.72

fixed cost per unit     $  26.5

total unit cost            $  116.22

Explanation:

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825,420 / 9,200 = 89.72

This will keep constant at unit level thus, at 9,400 the variable cost will still be 89.72

Now fixed cost: 249,100 / 9,400 output = 26.5

This is the fixed cost per unit considering a 9,400 untis output

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89.72 + 26.5 = 116.22

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Answer:

Lack of growth

Explanation:

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Modern economics as a field of study is usually thought to have begun with which of the following?
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A job cost sheet of Fugate Company is given below.
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Answer:

A.Direct material 5,320

Direct labour 1,700

Manufacturing overhead 2,550

B. Total cost 9,570

Unit cost 6.38

C. Dr Finished goods inventory account 9,570

Cr Work in Process inventory account 9,570

Explanation:

A. Calculation for the predetemined manufacturing overhead rate

Date Direct material Direct Labour Manufacturing Overhead

5/10 1,330

12 1,120

15 550 825 825

22 480 720 720

24 1,000

27 1,870

31 670 1,005

Total 5,320 1,700 2,550

B. Calculation for the total cost and the unit cost of the completed job

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Direct Labour 1,700

Manufacturing Overhead 2,550

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Unit Cost = Total Cost / Number of units

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C.Therefore when a job is fully completed, thebFinished goods inventory account will be

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Journal entry

May.31

Dr Finished goods inventory account 9,570

Cr Work in Process inventory account 9,570

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