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tresset_1 [31]
3 years ago
12

Islander Inc. is a new firm in a rapidly growing industry. The company would be paying $2.50 in dividend next year. After that t

he company intends to grow the dividend at a 8% rate annually over a long period. You plan to buy the stock now and expect to sell it for $48.23 three years from now. What price must you pay now if your required rate of return is 10%
Business
1 answer:
QveST [7]3 years ago
5 0

Answer: $42.93

Explanation:

To solve this question goes thus:

Year 1:

Cash flow = $2.50

PV at 10% = 0.9091

Present value = $2.27

Year 2:

Cash flow = $2.70

PV at 10% = 0.8264

Present value = $2.23

Year 3:

Cash flow = $2.92

PV at 10% = 0.7513

Present value = $2.19

Price at Year 3:

Cash flow = $48.23

PV at 10% = 0.7513

Present value = $36.24

Price to be paid = $2.27 + $2.23 + $2.19 + $36.24 = $42.93

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  • Shut down, if the minimum possible average variable cost is $5

In the purely competitive market majority of the producers is price taker as there are many sellers of the same homogenous product. When in the situation of Marginal Cost (MC) of product at the current rate of production is equal to the market price. This shows that the firm isn’t in profit, it is selling at which they are producing. So, the Average Variable Cost AVC of product at this level indicates the shutdown of the firm production.

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2 years ago
Galloway, Inc. has an odd dividend policy. The company just paid a dividend of $6 per share and has announced that it will incre
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Answer:

the present value of the stock is 26.57

This will be the amount willing to pay per share today.

Explanation:

We have to calculate the present value of the future dividend

\left[\begin{array}{ccc}Year&Cashflow&Present \: Value\\0&6&\\1&7&6.3636\\2&8&6.6116\\3&9&6.7618\\4&10&6.8301\\total&9.7&26.5671\\\end{array}\right]

\frac{Dividend}{(1 + rate)^{time} } = PV

We will put each dividend and their year into the formula and solve for PV

First Year

\frac{7}{(1 + 0.1)^{1} } = PV

Second Year

\frac{8}{(1 + 0.1)^{2} } = PV

Third Year

\frac{9}{(1 + 0.1)^{3} } = PV

Fourth Year

\frac{10}{(1 + 0.1)^{4} } = PV

The value of the stock is the sum of the present value of their dividend

The sum for this firm is 26.5671 = 26.57

6 0
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<u>Answer:</u>

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Answer:

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3 years ago
If a shortage exists in a market, the natural tendency is for:
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A shortage in the marketing occurs if the quantity demanded is larger than the quantity supplied. If a shortage exists in a market, the natural tendency is for the price to increase. Gas is a great example if price increases when there is a shortage within the market. Whenever there is a shortage in gas we often see the price of gas driving upwards of cents to dollars more per gallon. This happens because the market is aware that even with the increase in price, people still need purchase gas to live daily life. Therefore, as it's rising in price, people are still purchasing and likely it will keep climbing for a little while. 
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