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
Yuliya22 [10]
3 years ago
13

A local bank pays 100% of its earnings out in dividends. If earnings continue to grow at 2% per year and the most recent annual

dividend is $0.88. How much would you be willing to pay for this stock if you expect the return on the market portfolio to be 10%, the risk-free rate to be 3%, and the company’s beta to be 0.7?
Business
1 answer:
Ivenika [448]3 years ago
7 0

Answer:

The maximum price per share that should be paid today is $15.21

Explanation:

We first need to calculate the required rate of return (r) on this stock. The required rate of return can be calculated using the CAPM approach.

r = rRF + Beta * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is return on market

r = 0.03 + 0.7 * (0.1 - 0.03)   =  0.079 or 7.9%

The fair price per share of this stock can be calculated using the constant growth model of DDM as the earnings, which will all be paid out as dividend, are expected to grow at a constant rate of 2%. The formula for price per share today under this model is,

P0 = D0 * (1+g)  /  (r - g)

P0 = 0.88 * (1+0.02) / (0.079 - 0.02)

P0 = $15.21

You might be interested in
Actimel is a dairy-based probiotic supplemental beverage made by Dannon. Originally, it was sold in organic food stores and only
devlian [24]

Answer:

The correct answer is:<u> tracking studies.</u>

Explanation:

Tracking studies is characterized as an instrument for measuring and evaluating the results of a particular company's marketing campaign. It is a relevant tool for analyzing how a campaign is capable of impacting positive long-term effects, such as consumer perception and satisfaction about a brand and the feelings involved about a new product or service.

In order to be successfully applied, a tracking study must be to set up a focus group and elaborate the necessary and correctly directed questions to obtain the data that it seeks for measurement.

The great benefit of this study is that it is longitudinal, that is, it analyzes views and opinions of the same group of people over a period of time, which ensures greater reliability and effectiveness of the data and observed changes to the measurement.

7 0
3 years ago
Direct material budget. Dawson Co. produces wine. The company expects to produce 2,535,000 two-liter bottles of Chablis in 2018.
mars1129 [50]

Answer:

2,558,000 bottles

Explanation:

The formula for computation of the purchase is:

Purchase in units = Usage + Desired ending material inventory units − Beginning inventory units.

In format that will be:

Beginning inventory   54,000

Plus: Purchases.........2,558,000

Less:ending inventory <u>77,000</u>

Required For Use......<u>2,535,000</u>

Hence the number of bottles to be purchased in 2018 is 2,558,000

8 0
3 years ago
The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently making economic l
k0ka [10]

Answer:

The price of fertilizer must be greater than average variable cost.

Explanation:

  • Being a perfectly competitive market the prices of the fertilizers will rise. As the forms are making economic losses the prices must be greater the average variable costs.
8 0
3 years ago
A sample of 51 observations will be taken from an infinite population. The population proportion equals 0.85. The probability th
3241004551 [841]

Answer:

c. 0.0819

Explanation:

The mean = 0.85

standard error of the proportion is:     sp = sqrt(pq/n)

= sqrt ((.85)(0.15) / 51) = 0.05

P(0.9115 < X < 0.946) = P( (0.9115 - 0.85) / 0.05 < z < (0.946 - 0.85) / 0.05 )

= P(1.23 < z < 1.92)

= P(z < 1.92) - P(z < 1.23) = 0.0819

8 0
2 years ago
The Alston Inn is managed by Inns, Inc. The management contract requires 6 percent of total revenue to be transferred to the rep
Scrat [10]

Answer:

1.) Inn's annual total revenue = $7,300,000

2.) Inn's annual net operating income = $1,095,000

3.) Inn's debt service coverage ratio for the year = 9.13

Explanation:

The room revenue is first calculated as follows:

Room revenue = Number of guestrooms * ADR * Percentage of occupancy * 365 days = 200 * $100 * 70% * 365 = $5,110,000

We can now proceed as follows:

1.) Determine the Inn's annual total revenue.

Annual total revenue = Room revenue / Paid occupancy percentage = $5,110,000 / 70% = $7,300,000

2.) Determine the Inn's annual net operating income

Annual net operating income = Total revenue * 15% = $7,300,000 * 15% = $1,095,000

3.) Determine the Inn's debt service coverage ratio for the year.

Debt service coverage ratio = Net operating income / Annual debt service = $1,095,000 / ($10,000 * 12) = 9.13

5 0
3 years ago
Other questions:
  • Chamberlain Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6 percent co
    9·1 answer
  • During the current year, Robert pays the following amounts associated with his own residence:
    10·1 answer
  • Turbo Technology Corp. recently went public with an initial public offering of 3.03 million shares of stock. The underwriter use
    10·1 answer
  • Suppose company a wants to develop a program that duplicates the functionality of a program made by company
    14·1 answer
  • Around the world, consumers are showing a robust appetite for the sharing-based economy. The presence of a few dominant companie
    5·1 answer
  • MICROECONOMICS Assignment. ANYONE WHO CAN COMPLETE THIS OR HELP ME WITH HOW TO DO IT ON MY OWN. It would be greatly appreciated.
    14·1 answer
  • PLEASE ANSWER THESE IT WOULD BE A HUGE HELP
    8·2 answers
  • What are the factor that you need to answer your and selective attention invertors?.elaborate your answer...
    6·1 answer
  • Bramble Corp. expects to purchase $110000 of materials in July and $130000 of materials in August. Three-fourths of all purchase
    15·1 answer
  • Identify three types of customers that a business serves.
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!