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morpeh [17]
2 years ago
6

Microsoft presently pays no dividend. You anticipate Microsoft will pay an annual dividend of $0.60 per share two years from tod

ay and you expect dividends to grow by 4% per year thereafter. IF Microsoft's equity cost of capital is 12%, then the value of a share of Microosfoft today is:
Business
2 answers:
Scorpion4ik [409]2 years ago
7 0

Answer:

The value of this stock today should be $6.22

Explanation:

The company will start paying dividends 2 years from today that is at t=2. The dividends received 2 years from today can be denoted as D2. The constant growth model of DDM will be used to calculate the price of this stock at t=2 as the growth rate in dividends is constant forever.

The price at t=2 will then be discounted back to its present value today to calculate the price of this stock today.

The price of this stock at t=2 will be,

P2 = D2 * (1+g) / (r - g)

P2 = 0.6 * (1+0.04)  /  (0.12 - 0.04)

P2 = $7.8

The value of this stock today should be,

P0 = 7.8 / (1+0.12)^2

P0 = $6.218 ROUNDED OFF TO $6.22

LuckyWell [14K]2 years ago
3 0

Answer:

Price of share = $ 0.6696

Explanation:

<em>According to the dividend valuation model , the current price of a stock is the present value of the expected future dividends discounted at the required rate of return</em>

This principle can be applied as follows:

Year 2  0.60× 1.12^(-2) = $0.04783

PV of year of year 3 onward

This will  done in two steps:

Step 1

Calculate the PV of dividend in year 2 terms

= 0.60× 1.04 /(0.12-0.04) = $0.78

Step 2

Re-discount the PV (in year 2) to year 0

0.78 × 1.12 ^(-2) = 0.621811224

Price of share

=0.04783 +0.621811

=$ 0.6696

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mariarad [96]

Answer:

Price lowers and becomes negative or -5.37 dollars

Explanation:

Market risk premium's formula could be written as dividends/price + dividend's growth rate. Therefore, we dividend growth rate according to the current price and dividend level equal to market risk premium - dividends/price or 0.15 - 1/15.43 = 0.086 or 8.6%. If the dividend growth rate rises by 25% than new one is 33.6%. Price is equal to dividends/market risk premium - dividend growth rate or in this case 1/0.15-0.336 or 1/-0.186 or -5.37 dollars. If the price is negative that would mean that any future selling of the stock would mean that ABC would have to pay in order to sell it.

4 0
2 years ago
Devlin Manufacturing makes a single product. Expected manufacturing costs are as follows:Variable costsDirect materials $6.50 pe
expeople1 [14]

Answer:

Manufacturing cost:                                        $

Direct material ($6.50 x 3,200)                   20,800

Direct labour ($2.40 x 3,200)                     7,680

Manufacturing overhead ($1.10 x  3,200)   3,520

Supervisory salaries                                       13,600

Depreciation                                                 5,500

Other fixed costs                                          <u>2,200</u>

Total manufacturing cost                            <u> 53,300</u>

Explanation:

Total manufacturing cost is the aggregate of direct material, direct labour,variable manufacturing overhead and fixed costs. Fixed costs include supervisory salaries, depreciation and other fixed costs. Direct material cost per unit, direct labour cost per unit and manufacturing overhead cost per unit should be multiplied by the budgeted units per month.                      

7 0
2 years ago
A ________ is a partnership in which two or more companies (often from different countries) join together and share the risk and
GenaCL600 [577]

Answer:

The correct answer is letter "B": joint venture.

Explanation:

Two or more companies in a traditional joint venture plan to commit capital and resources to a specific project. Developers, manufacturers, and service providers typically agree to form a joint venture. If successful, those parties divide the income based on the value of their respective joint venture contributions.

4 0
2 years ago
A company needs $8 million in new capital for expanded composites manufacturing. It is offering small-denomination corporate bon
Softa [21]

Answer:

nominal interest rate = 4% annual

effective interest rate =  5.56% annual

Explanation:

the bond's nominal rate is basically the coupon rate

to calculate the bond's effective interest rate we must calculate its yield to maturity:

YTM = [coupon + [(face value - present value) / n]} / [(face value + present value) / 2]

  • coupon = $1,000 x 4% x 1/2 = $20
  • FV = $1,000
  • PV = $800
  • n = 40

YTM = [20 + [(1,000 - 800) / 40]} / [(1,000 + 800) / 2]

YTM = 25 / 900 = 2.777 semiannual ⇒ 5.56% annual

6 0
2 years ago
In the introduction to his speech on the art of digital photography, Terrance mentioned that he works part-time at a camera shop
elixir [45]

Answer: The correct answer is "a. establish credibility".

Explanation: Terrance was seeking to accomplish the "establish credibility" goal in the speech introduction.

Among the qualities that every speaker should have is credibility, characterized by three other qualities, which are: honesty, knowledge and dynamism. The credibility also has to do with the good reputation of the speaker to obtain acceptance of his message, in addition to being well prepared, that is, having knowledge, competence and experience on the subject.

4 0
2 years ago
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