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riadik2000 [5.3K]
3 years ago
5

Assume the Atlas Corporation is expected to pay a $5 cash dividend next year. Dividends are expected to shrink at a rate of 3% p

er year. The expected return from the market portfolio is 13% and riskless interest rate is 6%. Use the constant-growth dividend discount model (DDM) to determine the intrinsic value of Atlas stock if the company has a beta of .5.
Business
1 answer:
Simora [160]3 years ago
3 0

Answer: $40

Explanation:

First find the required return using CAPM;

Required return = Riskfree rate + beta * (Market return - riskfree rate)

= 6% + 0.5 * (13% - 6%)

= 9.5%

Then use DDM to determine intrinsic value;

= Next dividend / (Required return - growth rate)

= 5 / (9.5% - (-3%))

= $40

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$29.70

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Required return = Risk - free rate + [ Beta × (Market rate- risk-free rate) ]

= 2.5% + 1.44 × (11% - 2.5%)

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Intrinsic value = \frac{\textup{D1}}{\textup{(Required return-Growth rate)
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=\frac{\textup{2}\times(1+0.075)}{\textup{(0.1474-0.075)
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= 29.69 ≈ $29.70

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3 years ago
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Answer:

The correct answer is equal to price.

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The price level is determined at the point where the marginal cost is equal to price. The marginal revenue is always equal to price because the price is fixed at a point, each output level is supplied at the same price.

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3 years ago
You're serving on a marketing team for an online client, and you've been asked to create a list of key performance indicators (K
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For recording this transaction, we debited the cash account as the sale is made which increases the asset and credited the common stock account because the common stock is sold which reduces the equity balance.

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Why does Joe's demand curve have a negative slope? Joe only has so much money; when other things get more expensive he must buy
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Answer:

The answer is: He needs the price of coffee to go down to convince him to buy more.

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A demand curve (almost) always has a negative slope. As a product gets more expensive, the amount of people willing to buy that product decreases. So if the product gets cheaper, the more people are willing to purchase it.

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