The Investment Decision relates to the decision whether or not the company is going to invest in an project which requires the funding and resources of the country. The primary ambition of the company is to increase the profit of the organization which it is considering by establishing chip manufacturing factory. This decision might be affected by the government opposition however the decision is investment oriented decision making.

4 0

4 years ago

What is the value of Yutter's stock at the end of Year 1 using the dividend discount model assuming that the dividend payout rat

Blizzard [7]

Answer:

$557,000

Explanation:

Note: <em>Missing word is attached as picture below</em>

Retention Ratio = (Net Income - Dividends) / Net Income

Retention Ratio = (12500 - 3000) / 12500

Retention Ratio = 9500 / 12500

Retention Ratio = 0.76

Retention Ratio = 76%

Sustainable equity growth rate = Retention Ratio * Return on Equity

Sustainable equity growth rate = 76% * 15%

Sustainable equity growth rate = 11.40%

Expected dividend per share = Current Year Dividend *(100 + Growth Rate)%

Expected dividend per share = 3000 * (100+11.4)%

Expected dividend per share = 3000 * 111.4%

Expected dividend per share = 3342

Value of Stock = Expected dividend per share / (Cost of capital equity - Dividend growth rate)

Value of Stock = 3342 / (12% - 11.40%)

Value of Stock = $557,000

3 0

3 years ago