1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Artist 52 [7]
3 years ago
12

Suppose you started a new all-equity financed company that is expected to generate an ROE of 15% indefinitely. The current book

value per share equals $30. The required return on the stock equals 12% and you expect to grow at a constant rate of 5% forever. What is the value of the stock of the startup company
Business
1 answer:
Luda [366]3 years ago
7 0

Answer:

The value of the stock at start-up = $67.5

Explanation:

According to the dividend valuation model , the current price of a stock is the present value of the expected future dividends discounted at the required rate of return  

This principle can be applied as follows:  

The value of stock today is the present value of the future return discounted at the required rate of return

The return can be computed as the ROE × Book value of share

Return = 15%× 30 =4.5

Price of stock today = D× (1+g)/r-g

D= current return, g- growth rate, r-required rate of return

DATA: D= 4.5, g= 5%, r= 12%

PV  = 4.5× (1.05)/(0.12-0.05)

= 67.5

The value of the stock at start-up = $67.5

You might be interested in
Darby's company reported net income after taxes of $2,000,000, on sales of $225 million. her boss asked her to calculate the ear
Dafna1 [17]
Darby's correct response is $0.045 per share.
Because we can calculate earnings per share by taking net income after taxes and then dividing it by the total number of common shares that are issued.
Income after taxes = <span>$2,000,000
shares = $44,000,000
Earnings per share = $2,000,000 / $44,000,000
=$2/$44
=$0.045</span>
3 0
3 years ago
I’m two to four sentences, explain economics of scale.
schepotkina [342]
These occur whenever a firm's marginal costs of production diminishes. they could result from change on a macroeconomic level, reducing burrowing costs. or new infrastructure
5 0
3 years ago
Inventory is an extra cost associated with the Aggregate Production Planning strategy of _____
goldfiish [28.3K]

Answer:

Production

Explanation:

6 0
3 years ago
Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is qu
ahrayia [7]

Answer

The answer and procedures of the exercise are attached in the following image.

Explanation  

Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.  

6 0
3 years ago
American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota
Ugo [173]

Answer:

Quota is preferred by the Chinese apparel manufacturers.

Explanation:

The reason is that the China has an competitive advantage of less costly workers and also that they are highly competitive in terms of prices. Usually the quality of American’s products are far much better in quality and technology. This means if the tariffs are imposed on Chinese products then their are huge revenue losses to Chinese apparel manufacturers. Whereas quota will enable them to sale their products to America which shows lower revenue losses.

So quota is far much better for Chinese manufacturer’s in case if America decides to use protectionist approach, I mean America decides to imposed trade barriers for Chinese companies to protect American companies.

7 0
3 years ago
Read 2 more answers
Other questions:
  • Which of the following is an advantage of consumer credit?
    10·1 answer
  • Which of the following best describes the amount of money you'll have if you put $1,000 into a savings account earning 1% annual
    8·1 answer
  • Ballard Company uses the perpetual inventory system. The company purchased $16,000 of merchandise from Andes Company under the t
    14·1 answer
  • A Japanese insurance company purchases U.S. government securities. From the perspective of the United States, the balance of tra
    14·1 answer
  • How many start-up businesses are created each year
    9·2 answers
  • Dubberly Corporation's cost formula for its manufacturing overhead is $31,600 per month plus $52 per machine-hour. For the month
    7·1 answer
  • Ratchet Manufacturing anticipates total sales for August, September, and October of $200,000, $210,000, and $220,500 respectivel
    12·1 answer
  • Olivia was returning from her break when her boss saw her and stated, "I noticed your break was especially long this afternoon."
    12·1 answer
  • Which of the following is NOT true about business incubators?
    11·1 answer
  • Eastern Electric currently pays a dividend of about $1.96 per share and sells for $37 a share. A. If investors believe the growt
    5·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!