As it is known that future cash flows are
risky in nature so it is not possible to discount them at risk free rate. So
investor must discount the future cash flows based on the equity cost of
capital. It is the expected return of the other investments available in the market
with same kind of risk to the firm’s share.
Price of the stock can be found by using
the cost of equity equation which is as follows:
Po = Div_1 + P_1 / 1 + r_E
$15 = 0.8 + X / 1.12
X = $16
So the expected selling price of the
stock is $16.00
Answer:
Threats in its external environment.
Explanation:
Situational analysis can be described as the thorough examination of the internal and external constituents of an organization.
Situational analysis is employed by different organizations to help identify their strengths and weaknesses. It helps to examine the capabilities of employees within an organization.
Situational analysis helps to identify the current strategies and activities that have been put in place inorder to solve problem. It also helps to get a clear insight into the different opinions and experiences of stakeholders.
Answer: 10.67%
Explanation:
Mr Madoff is offering to grow the current value of $1,000 to a future value of $1,500 in 4 years.
This is a future value problem.
1,500 = 1,000 * ( 1 + interest) ^ 4 years
( 1 + interest) ^ 4 = 1,500/1,000
( 1 + interest) = 4√(1,500/1,000)
1 + interest = 1.1066819197
Interest = 1.1066819197 - 1
= 10.67%
Answer:
6.75%
Explanation:
Price of bonds is equal to their par value when coupon rates match with yields to maturity. The 20-year bond with semiannual coupon payments is going to have 40 coupons payment plus 1 par value payment. Let formulate the price of this bond as below:
Bond price = [Par value x (Coupon rate/2)]/[1 + (YTM/2)] + [Par value x (Coupon rate/2)]/[1 + (YTM/2)]^2 + ...+ [Par value x (Coupon rate/2) + Par value]/[1 + (YTM/2)]^40, or:
972.78 = [1,000 x (6.5%/2)]/[1 + (YTM/2)] + [1,000 x (6.5%/2)]/[1 + (YTM/2)]^2 + ...+ [1,000 x (6.5%/2) + 1,000]/[1 + (YTM/2)]^40
Solve the equation we get YTM = 6.75%.
So, the company should set 6.75% coupon rate on its new bonds if it wants to sell them at par.
Answer:
True
Explanation:
Using FIFO,
Under First in First out method, items that were purchased first will be availed for sale first. In this case, the opening stock of 5 at $10 items will be sold first. An additional 7 units will be required from the next batch of purchases at $11.
The costs of the first 12 units will be
=(5 x 10)+ (7 x 11)
=50 +77
=$127
With LIFO, the items acquired last will be sold first. In this case, the 12 items sold will come the batch of 15 purchased at $11 in the months
Using LIFO, the cost of goods available for sale.
=12 X $11
=132
The difference is the costs of goods available for sale is $ 5, with FIFO having a lower cost. It means FIFO profits will be $5 more.
