Answer:
a. Lucia's current bundle maximizes her utility, and she should keep it unchanged.
Explanation:
The computation is shown below:
As we know that the utility would be maximized when the marginal rate of substitution is equivalent to the price ratio
I.e.
MRS = Price ratio
Here, Price ratio is
= $4.5 ÷ $1.5
= 3
So the 3 would also represent the marginal rate of substitution (MRS)
Therefore the correct option is a.
hence, the rest of the options would be incorrect
Answer:
a. The best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends is 10.91%
a. The best estimate of the company’s cost of equity capital using the geometric average growth rate is 10.88%
Explanation:
a.
Time Dividend per share ($) Growth
-4 1.80
-3 1.98 10.00%
-2 2.05 3.54%
-1 2.16 5.37%
0 2.24 3.70%
Average 5.65%
D0 = $ 2.24 / share
g = 5.65%
D1 = D0 x (1 + g)
= 2.24 x (1 + 5.65%)
= $ 2.37
Current share price = P = $ 45 = D1 / (Ke - g)
The cost of equity = D1 / P + g
= 2.37 / 45 + 5.65%
= 10.91%
Therefore, The best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends is 10.91%
a. What if you use the geometric average growth rate?
A DPS of $ 1.80 / share 4 years back has given way to a DPS of $ 2.24 today.
CAGR, g = (2.24 / 1.80)1/4 - 1
= 5.62%
D1 = 2.24 x (1 + g)
= 2.24 x (1 + 5,62%)
= $ 2.37
cost of equity = D1 / P + g
= 2.37 / 45 + 5.62%
= 10.88%
Therefore, The best estimate of the company’s cost of equity capital using the geometric average growth rate is 10.88%
Answer:
My Guess would be 50% because it's half of her coverage I hope this helps you
