Rossdale Co. stock currently sells for $68.91 per share and has a beta of .88. The market risk premium is 7.10 percent and the risk-free rate is 2.91 percent annually. The company just paid a dividend of $3.57 per share, which it has pledged to increase at an annual rate of 3.25 percent indefinitely. What is your best estimate of the company's cost of equity?
Answers
Answer:
Cost of Equity 8.794%
Explanation:
We can solve for the cost of equity using the CAPM
risk free 0.0291
premium market = market rate - risk free 0.071
beta(non diversifiable risk) 0.88
Ke 0.09158 = 9.158%
Or using the gordon dividend grow model
D= 3.57
return = ?
growth 0.0325
stock = 68.91
we solve for return:
return = 0,08430670 = 8.43%
Now we have two diferent rates, so we can do an average to get the best estimate cost of equity
(9.158 + 8.43)/2 = 8.794%
Final answer:
The company's cost of equity, based on provided data points and the Capital Asset Pricing Model (CAPM), is calculated to be 9.14% annually.
Explanation:
Cost of equity is typically estimated using the Capital Asset Pricing Model (CAPM). Under the CAPM, the cost of equity is a function of the risk-free interest rate, the equity's beta, and the expected market risk premium. In this case, we can substitue the given values into the CAPM equation, which is: Cost of Equity = Risk-free rate + Beta * Market Risk Premium. Therefore, the company's cost of equity can be calculated as: Cost of Equity = 2.91% + 0.88 * 7.10% = 9.14%. As for the dividends, they are growing at a rate of 3.25% annually, but they are not directly contributing to the company's cost of equity.
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Related Questions
The process of planning and managing a firm’s long-term assets is called:______.A. Capital BudgetingB. Agency Cost AnalysisC. Capital Structure
Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2018. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2018 and 2019\.\* A consulting firm, engaged as actuary, recommends 6% as the appropriate discount rate. The service cost is $150,000 for 2018 and $200,000 for 2019. Year-end funding is $160,000 for 2018 and $170,000 for 2019. No assumptions or estimates were revised during 2018.Calculate (a) project benefit obligation, (b) plan asset and (c) pension expenses as both December 31, 2018 and December 31, 2019.
What is the present value of a $500 payment received at the end of each of the next five years, worth to you today at the appropriate discount rate of 6 percent? $1,105 $1,850 $2,106 $2,778
An increase in the interest rate A. increases the percentage yield of holding money. B. decreases the opportunity cos
b) false
Answers
Final answer:
The statement in question is true. Overhead variance is determined by the difference between actual and applied overhead costs. This kind of analysis helps in understanding cost inefficiencies and making future budgets.
Explanation:
The statement 'The total overhead variance is the difference between actual overhead costs and overhead costs applied to work done' is true. In cost accounting, overhead variance is indeed determined by the difference between the real, or actual overhead expenses for a certain period and the overhead costs which were anticipated or pre-applied to the work done in that same period. This kind of variance analysis helps the business to understand where and how their cost estimates were off, and make necessary adjustments for future cost predictions and budgeting. For example, if the actual overhead costs are higher than the applied overhead costs, it could signify inefficiency in the production process. Conversely, if the applied overhead costs are higher than the actual costs, it signifies cost efficiency.
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Answers
Answer:
True
Explanation: If you have overdraft protection your account
Answers
Answer:
B. 37.8%, 10.8%, 162.5%
Explanation:
1. Changes in Net Sales
We know,
Percentage changes in Net sales from previous year to current year =
Given,
= $62,000
= $45,000
Therefore,
Percentage changes in Net Sales =
Percentage changes in Net Sales = 37.8% (Rounded to 1 decimal Places)
Therefore, Net sales changes 37.8% from 2016 to 2017.
2. Changes in Cost of Goods sold
We know,
Percentage changes in Cost of goods sold from previous year to current year =
Given,
= $41,000
= $37,000
Putting the value in the above formula,
Percentage changes in COGS =
Percentage changes in COGS = 10.8%
Therefore, Cost of goods sold changes 10.8% from 2016 to 2017.
3. Changes in Gross Profit
We know,
Percentage changes in Gross Profit from previous year to current year =
Given,
= $21,000
= $8,000
Hence,
Percentage changes in Gross Profit =
Percentage changes in Gross Profit = 162.5%
Therefore, Gross Profit changes 162.5% from 2016 to 2017.
Answers
Answer:
Payback period = 2.5 years
Explanation:
given data
Year 0 1 2 3
cash -$500 $150 $200 $300
to find out
What is the project's payback
solution
Year Cash flows Cumulative Cash flows
0 500 500
1 150 350
2 200 150
3 300 150
so
Payback period = Last period with a negative cumulative cash flow +(Absolute value of cumulative cash flows at that period ÷ Cash flow after that period) .........................1
put here value we get
so
Payback period =
Payback period = 2.5 years
Final answer:
The payback period for the project is approximately 2.75 years.
Explanation:
The payback period is a financial metric used to assess the time it takes for an investment or project to generate enough cash flows to recover the initial investment cost. It's a simple tool for evaluating the risk and return of an investment, with shorter payback periods generally indicating lower risk. The payback period is the amount of time it takes to recover the initial investment in a project.
To calculate the payback period, we sum the cash flows until we reach or surpass the initial investment.
In this case, the initial investment is $500, and the cash flows are: $150, $200, and $300 in years 1, 2, and 3 respectively.
By adding the cash flows together, we find that the project's payback is 2 years and 25% of year 3, which is approximately 2.75 years.
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Answers
Answer:
Gross pay = 600
Deductions = 99.9
Net Pay = 500.1
Explanation:
Requirement A:
Gross Pay = 40 hours x $15/hour
Gross Pay = $600
Requirement B:
Security Tax ( 600 x 6.2%) = $37.2
Medicare tax ( 600 x 1.45%) = $8.7
Federal Income = $32
Health Insurance = $22
Total deductions = $99.9
Requirement C :
Net Pay = Gross pay - all deductions
Net Pay = $600 - 99.9
Net Pay = 500.1
Answers
Answer:
Prior principal approval must be obtained and a copy of the speech must be retained in your firm's Office of Supervisory Jurisdiction
Explanation:
Because the speech is to be givento 35 attendees, it is under the Retail Communication. Every speech should be honest and of good taste; and the speech must be informational, but far from promotional.
It is not required that the speech content has to be pre-filed with the SEC. A copy must be kept a period of f 3 years for inspection by FINRA examiners. The speech script would be kept on file in the firm's supervisory compliance office that is the Office of Supervisory Jurisdiction.