McGaha Enterprises expects earnings and dividends to grow at a rate of 28% for the next 4 years, after the growth rate in earnin
1 answer:
Answer:
The current price of the common stock is $29.05
Explanation:
Cost of Equity = Rf + beta x MRP = 3% + 1.20 × 5.50% = 9.6%
Dividend in the n the year = D₀ ×
D₁ = $1.25 × 1.25 = $1.56255
D₂ = $1.5625 × 1.25 = $1.9531
D₃ = $1.9531 × 1.25 = $2.44
D₄ = $2.44 × 1.25 = $3.052
Terminal value = D₄ ×
= $3.052 x (1+0.0) ÷ (9.60 - 0.0)
= $31.79
Total value in 4th year = $3.052 + $31.79 = $34.8409
Total cash flows = $1.5625, $1.9531, $2.4414, $34.8409
(Present value Cash-flows at 9.60% ) $1.4256, $1.6260, $1.8544, $24.1461
= $29.05
Current price = $29.05
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Answer:
5.657%
Explanation:
Data provided:
Face value = $1,000
Current market price = $640
Time of maturity, t = 8 year
Now,
the compounding formula is given as:
Face value = Current amount ×
where,
r is the rate i.e pretax rate of debt
n is the number of times the interest is compounded i.e for semiannual n = 2
thus, on substituting the values, we get
$ 1,000= $ 640 ×
or
1.5625 =
or
= 1.0282
or
r = 0.05657
or
pretax cost of debt = 0.05657 × 100% = 5.657%
Answer:
The uniform annual sales volume of the product for Nadine to be indifferent between the contracts is 7,772 units per year.
Explanation:
We have to compare the present-value of both plans to answer this question.
The Plan A has a present value of $30,000 as is an inmediate payment.
The Plan B has both an annual payment and a royalty, for a span of ten years.
The present value for Plan B is:
This can be simplified with a annuity factor for 10 years, with i=10%.
Then, the PV can be calculated as:
To be indifferent, both present values have to be equal:
The uniform annual sales volume of the product for Nadine to be indifferent between the contracts is 7,772 units per year.