You are considering the purchase of a stock that is currently selling at $ 64 per share. You expect the stock to pay $ 4.50 in dividends next year. a.If dividends are expected to grow at a constant rate of 3 percent per year, what is your expected rate of return on this stock? b.If dividends are expected to grow at a constant rate of 5 percent per year, what is your expected rate of return on this stock?
Answers
Answer:
a. Expected rate of return = 10%
b. Expected rate of return = 12%
Explanation:
Using dividend growth model we have,
where P = Current market price
D = Dividend at the year end
K = Expected return
g = growth rate
Putting values in the above we have,
a. $64 =
=
K = 0.07 + 0.03 = 0.1 = 10%
b. $64 =
=
K = 0.07 + 0.05 = 0.12 = 12%
Final Answer
a. Expected rate of return = 10%
b. Expected rate of return = 12%
Final answer:
The expected rate of return on the stock with a dividend growth rate of 3% is 7.03%, and with a dividend growth rate of 5% it is 9.03%.
Explanation:
The expected rate of return of an investment in a stock can be reduced to a calculation involving the cost of the stock, the dividends expected to be paid, and the rate of growth of those dividends. The formula for the expected rate of return is:
Rate of Return = (Dividends one year from now / Current Stock Price) + Dividend Growth Rate
In the case of the stock you are analyzing:
- for a dividend growth rate of 3%, the formula becomes:
- Expected Rate of Return = ($4.50 / $64) + 0.03 = 7.03%
- for a dividend growth rate of 5%, the formula becomes:
- Expected Rate of Return = ($4.50 / $64) + 0.05 = 9.03%
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b.
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c.
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2. Record the January 31, 2016 adjusting entry for the December 31, 2015 receipt of $16,800 for magazine subscriptions to be published January through December 2016.
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Answers
Answer:
Journal Entries
a1) Magnificent Magazines
Date Details Dr Cr
$ $
December 31, 2015 Cash 16,800
Deferred Revenue-subscription 16,800
Being recognition of prepaid subscription service for the year 2016
a2) Magnificent Magazines
Date Details Dr Cr
$ $
January 31, 2016 Deferred Revenue-subscription 1,400
Revenue 1,400
Being revenue for the month of January 2016
b1) Walker Window Washing
Date Details Dr Cr
$ $
December 31, 2015 Prepaid expense-Supplies 1680
Cash 1680
Being recognition of advance payment for supplies
b2) Walker Window Washing
Date Details Dr Cr
$ $
January 31, 2016 Expense - supplies 280
Prepaid expense-Supplies 280
Being supply expense for the month of January
c1) Indoor Raceway
Date Details Dr Cr
$ $
December 31, 2015 Cash 4,200
Deferred Revenue 4,200
Being recognition of race income paid in advance
c2) Indoor Raceway
Date Details Dr Cr
$ $
January 31, 2016 Deferred Revenue 1,400
Revenue 1,400
Being revenue for the month of January 2016
Explanation:
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b) Walker windows paid in advance for supplies amounting to $1680, this is an asset to the company (prepayment) and as at January 2016, only $280 had been utilized. The utilized $280 is therefore expensed to the income statement
c) For Indoor Raceway, the $4200 is a liability as the services have not been provided yet, hence deferred revenue and the revenue is recognized after the service has been rendered in the income statement. For January, being 4200/3 = 1400
Answers
Answer:
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Explanation:
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Answers
Answer:
Parnevik Company
Journal Entries:
(a) March 1, 2020
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Credit Sales Revenue $660,000
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Answers
Answer:
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Explanation:
The association between two assets reflects the degree to which both assets are related. As the correlation between two assets decreases, the variation in portfolios increases.
Investment portfolios can be protected with the creative use of Correlation Diversification.
The less correlated assets are, the less risky an investment portfolio is.
Cheers!
Answers
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Answers
Answer:
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Explanation:
See attached files
Answer:
Explanation:
Suppose that LilyMac Photography has annual sales of $233,000, cost of goods sold of $168,000, average inventories of $4,800, average accounts receivable of $25,600, and an average accounts payable balance of $7,300.
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