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2 years ago

Whitewall Tire Co. just paid an annual dividend of $1.70 on its common shares.

Business

1 answer:

r-ruslan [8.4K]2 years ago

6 0

Answer:

10.59%

Explanation:

First, find next year's dividend using dividend discount model formula;

D1 = D0 (1+g)

D0 = current dividend paid = 1.70

D1 = expected next year's dividend

g = growth rate = 2.10% or 0.0210 as a decimal

therefore. D1 = 1.70 (1+0.0210)

D1 = 1.70 *1.0210

D1 = 1.7357

With the current price of $20.44, find the cost of stock (r) ;

r = $\frac{D1}{P0} + g$

P0 = Current price

r = $\frac{1.7357}{20.44} + 0.0210\\ \\ =0.0849 +0.0210\\ \\ =0.1059$

As a percentage, the cost of stock is 10.59%

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Which of the following statements is/are FALSE, all else the same?

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I. Present values increase as the discount rate increases.

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11 months ago

The consumer sector is the largest part of the macroeconomy. Please select the best answer from the choices provided T F

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2 years ago

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Andreyy89

Answer:

Difference between A and B =$42398.5

Process B is better as its PW value is smaller than Process A.

Explanation:

In order to use present worth, both Alternatives must have same time period. Since Process B has 4 years means 16 quarters so we make process A to have 16 quarters two with 2% interest rate per quarter.

Note:

We are going to use Compound Interest tables to simplify our work. Formulas can also be used.

For Process A:

Present value of process A= $-200,000-200,000(P/F,2\%,8)-10,000(P/A,2\%,16)+25,000(P/F,2\%,8)+25,000(P/F,2\%,16)$

Present value of process A= $-200,000-200,000(0.8535)-10,000(13.578)+25,000(0.8535)+25,000(0.7284)$

Present value of process A=-$466,932.5

For Process B:

Present value of process B= $-250,000-15,000(P/A,2\%,16)+40,000(P/A,2\%,16)$

Present value of process B= $-250,000-15,000(13.578)+40,000(0.7284)$

Present value of process B=-$424,534

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