Answer:Total Cost of equipment=$502,500
Explanation:
Total Cost of equipment= This is gotten by addition of Cost of Purchase +Shipping costs +Foundation work+ Testing expense
=$470,000+$14,100+$7,700+($7,000+$3,700.)
=$502,500
1. When will countries trade? Assuming 2 goods, food and clothing, and that both countries’ preferences are homothetic (but not necessarily identical), determine whether two countries will trade in each of the following situations: (a) Countries have identical preferences and identical endowments. (b) Countries have identical preferences, their endowments differ, and their endowments are not in the same ratio of food to clothing. (c) Countries have identical preferences, their endowments differ, but the ratio of food to clothing is the same in both countries. (d) Countries have identical endowments but different preferences. (e) Countries have both different preferences and different endowments.
Answer:
(a) Countries have identical preferences and identical endowments.
Explanation:
Analyzing the statement, there is information that the preferences of countries are homothetic (but not necessarily identical) with respect to the 2 goods, food and clothing.
That is why it is correct to state that countries will not trade with each other, as countries have identical preferences and identical allocations, which means that the demands for these goods will be related to the prices of the goods and not in relation to income or preferences.
Therefore, there is no need to commercialize these two goods between these countries, except in situations of scarcity.
As a result of a thorough physical inventory, Coronado Company determined that it had inventory worth $321000 at December 31, 2020. This count did not take into consideration the following facts: Walker Consignment currently has goods worth $46300 on its sales floor that belong to Coronado but are being sold on consignment by Walker. The selling price of these goods is $75000. Coronado purchased $21100 of goods that were shipped on December 27, FOB destination, that will be received by Coronado on January 3. Determine the correct amount of inventory that Coronado should report.
Answer:
The correct cost of inventory that Coronado should report is $367300
Explanation:
The goods sent on consignment still belong to the consignor until they are sold off by the consignee. So, the consignor should add the unsold consignment goods in its inventory. Thus we will add the cost of goods sent on consignment to the value of inventory.
Value of inventory = 321000 + 46300 = $367300
The goods purchased by Coronado on 27 December with FOB destination should not be added to the cost of inventory as with FOB destination terms, the goods do not belong to the buyer until they are delivered to their destination by the seller.
Thus, the correct cost of inventory that Coronado should report is $367300
to beter take into account the differential impact of fixed and variable costs, marketing managers canuse ____ pricing
Answer:
target return pricing
Explanation:
Target return pricing is a pricing method that uses a very simple formula:
target price = [unit cost + (desired return x capital)] /unit salesThe price is based on the ROI that the company expects from a certain product (or project).
Even though this is a fairly simple method for pricing a good or service, it can also have serious negative consequences:
it doesn't take in account consumers' tastes or preferenceswhat happens if the expected ROI is too high, that could kill a project that could have been successful otherwisethe time frames are not always exact, e.g. you believed that a project would last 5 years, but due to a technological breakthrough it only lasts 4In order to successfully apply this type of pricing strategy, a company must be able to achieve or exceed their sales goals.
Yoshi Co.'s 12/31/2020 inventory on a FIFO basis was $980,000. The following information is available: Estimated selling price is $1,020,000; Estimated cost of disposal is $40,000; Normal profit margin is $120,000; and Current replacement cost is $900,000. At 12/31/2020, assuming Yoshi uses the loss method, what amount of loss should Yoshi record from applying LCM
Answer:
Yoshi Co.
The amount of loss that Yoshi Co. should record from applying LCM (the lower of Cost or Market price) is:
$40,000
Explanation:
a) Data and Calculations:
FIFO inventory on 12/31/2020 = $980,000
Current replacement cost = $900,000
Net realizable value = $980,000 ($1,020,000 - $40,000)
Normal profit margin = $120,000
Loss to be recognized based on current replacement cost = FIFO purchase cost minus Current replacement cost
= $80,000 ($980,000 - $900,000)
b) Under the US GAAP (generally accepted accounting principles) of prudence and conservatism, the loss of $80,000 must be recognized in the current period, since the inventory will be booked at $900,000, its current replacement cost, which is lower than the FIFO purchase cost of $980,000.
Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $107,000 in sales during the second quarter of this year. If it began the quarter with $18,700 of inventory at cost and purchased $72,700 of inventory during the quarter, its estimated ending inventory by the gross profit method is:
Answer:
$16,500
Explanation:
The computation of the estimated ending inventory is given below:
As We know that
Cost of goods sold = Beginning inventory + purchase made - ending inventory
And, the
Sales - gross profit = Cost of goods sold
So,
$107,000 - $107,000 × 30% = Cost of goods sold
Therefore, the cost of goods sold is
= $107,000 - $32,100
= $74,900
And, finally the ending inventory is
$74,900 = $18,700 + $72,700 - ending inventory
$74,900 = $91,400 - ending inventory
So, the ending inventory is
= $91,400 - $74,900
= $16,500
4. Sectoral shifts, frictional unemployment, and job searches Suppose the world price of steel falls substantially. The demand for labor among steel-producing firms in Pennsylvania will . The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will . The temporary unemployment resulting from such sectoral shifts in the economy is best described as unemployment. Suppose the government wants to reduce this type of unemployment. Which of the following policies would help achieve this goal? Check all that apply. Improving a widely used job-search website so that it matches workers to job vacancies more effectively Establishing government-run employment agencies to connect unemployed workers to job vacancies Increasing the benefits offered to unemployed workers through the government's unemployment insurance program
Answer:
decrease
increase
structural unemployment
Improving a widely used job-search website so that it matches workers to job vacancies more effectively
Establishing government-run employment agencies to connect unemployed workers to job vacancies
Explanation:
If the world price of steel falls, the profits that can be earned from producing steel would fall. This would make steel-producing firms cutback on production. If they do this, they would lead less labour, so the demand for labour would fall.
The decrease in the price of steel would make purchasing steel by automobile companies cheaper. This would lead to a rise in production and as a result an increase in the demand for labour.
Structural unemployment occurs when there is a mismatch between the skills of labour and the jobs available. Measures taken to increase information on available jobs would reduce this type of unemployment
Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Clicks' income for the year consists of $89,000 in salary, $1,500 interest income, and $700 long-term capital loss. The Clicks' expenses for the year consist of $1,450 investment interest expense. Assuming that the Clicks' marginal tax rate is 35 percent, what is the amount of their investment interest expense deduction for the year
Answer:
$1,450
Explanation:
Interest Income = $1,500
Investment Interest expenses = $1,450
Allowed deduction limit investment interest is subject to investment income. So $1,450 is allowed as deduction
Farris Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 78 Units in beginning inventory 0 Units produced 8,800 Units sold 8,700 Units in ending inventory 100 Variable costs per unit: Direct materials $ 18 Direct labor $ 10 Variable manufacturing overhead $ 4 Variable selling and administrative expense $ 5 Fixed costs: Fixed manufacturing overhead $255,200 Fixed selling and administrative expense $ 87,000 What is the unit product cost for the month under absorption costing
Answer:
$61
Explanation:
The computation of unit product cost for the month under absorption costing is shown below:-
Unit product cost = Direct material + Direct labor + Variable Manufacturing overhead + Fixed manufacturing cost
= $18 + $10 + $4 + ($255,200 ÷ 8,800)
= $61
Therefore for computing the unit product cost for the month under absorption costing we simply applied the above formula.
"Should Dillard's keep its excellent department store credit card program? ______ Yes ______ No" is an example of _____.
Answer:
The answer is "making assumptions"
Explanation:
The making assumption is determined if it can't be provided to claim which is not confirmed unless the argument is one, which you or the writer could show if they tried, users must decide. It requires as a considering as thinks about both the subject so on that basis evaluating the statement.
It is the one way the mind saves power becomes to find patterns in how the environment functions, that draw from our previous history. It adopts such trends, or beliefs, to the current world when we experience new circumstances. Its approach saves us the power to evaluate the condition entirely fresh.The expected return on the market portfolio is 12%, and the relevant risk-free rate is 4.2%. What is the equity premium?
Answer:
7.8%
Explanation:
The expected return on the market portfolio is 12 percent
The risk free rate is 4.2 percent
Therefore the equity premium can be calculated as follow
= expected return - risk free rate
= 12% - 4.2%
= 7.8%
Hence the equity premium is 7.8%
Sampson Industries has an annual plant capacity of 70,000 units; current production is 59,000 units per year. At the current production volume, the variable cost per unit is $26.00 and the fixed cost per unit is $4.80. The normal selling price of Sampson's product is $41.00 per unit. Sampson has been asked by Caldwell Company to fill a special order for 7,000 units of the product at a special sales price of $20.00 per unit. Caldwell is located in a foreign country where Sampson does not currently operate. Caldwell will market the units in its country under its own brand name, so the special order is not expected to have any effect on Sampson's regular sales. Read the requirementsLOADING.... Requirement 1. How would accepting the special order impact Sampson's operating income? Should Sampson accept the special order? Complete the following incremental analysis to determine the impact on Sampson's operating income if it accepts this special order. (Enter a "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.) Incremental Analysis of Special Sales Order Decision Total Order (7,000 units) Revenue from special order $140,000 Less expenses associated with the order: Less: Variable manufacturing cost 182,000 Contribution margin $(42,000) Less: Additional fixed expenses associated with the order – Increase (decrease) in operating income from the special order
Answer:
Sampson Industries
1. How would accepting the special order impact Sampson's operating income?
The acceptance of the special order will decrease Sampson's operating income by $42,000.
2. Should Sampson accept the special order?
No. Sampson should not accept the special order. It does not make any contribution in reducing the fixed costs. Instead, it decreases the net income. Special orders should be accepted when they add to the contribution in defraying the fixed costs, even if they do not add to the net income.
Explanation:
a) Data and Calculations:
Annual plant capacity = 70,000 units
Current production = 59,000
Variable cost per unit = $26.00
Fixed cost per unit = $4.80
Normal Selling price per unit = $41
Special order = 70,000
Price of special order = $20
Incremental Analysis of Special Sales Order Decision
Total Order (7,000 units)
Revenue from special order $140,000
Less expenses associated with the order:
Less: Variable manufacturing cost 182,000
Contribution margin $(42,000)
Less: Additional fixed expenses associated with the order –
Increase (decrease) in operating income from the special order ($42,000)
During 20x1, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows:________.
FIFO Weighted-average
January 1, 20x1 $71,000 $77,000
December 31, 20x1 $79,000 $83,000
Orca's income tax rate is 30%.
In its 2005 financial statements, what amount should Orca report as the cumulative effect of this accounting change?
a) $2,800
b) $4,000
c) $4,200
d) $6,000
Answer:
Orca Corp.
The cumulative effect of this accounting change in estimate is:
That the cost of goods sold will be reduced by:
b) $4,000
Explanation:
a) Data and Calculations:
FIFO Weighted-average Difference
January 1, 20x1 $71,000 $77,000 $6,000
December 31, 20x1 $79,000 $83,000 $4,000
Orca's income tax rate is 30%.
Note that the difference in the cost of the beginning inventory does not have any effect in the current period's financials. It was an estimate that was done previously and Orca does not need to restate its financials for the previous year because of the change. The accounting change only affects the current period.
If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be: Multiple Choice Assets increase $4,500 and liabilities decrease $4,500. One asset increases $4,500 and another asset decreases $4,500. Equity decreases $4,500 and liabilities increase $4,500. Equity increases $4,500 and liabilities decrease $4,500. Assets increase $4,500 and liabilities increase $4,500.
Answer: Assets increase $4,500 and liabilities increase $4,500.
Explanation:
An asset are the properties which a business or an organization owns. An asset possess an economic value.
Since the equipment purchased is an asset, this will lead to an increase of assets by $4500 and since it was bought on credit and hasn't been paid for, liabilities will also increase by $4500.
Jessica and Robert have two young children. They have $7,000 of qualified child care expenses and an AGI of $22,000 in 2019. What is their allowable child and dependent care credit considering their pre-credit tax liability
Answer:
$0
Explanation:
The computation of the their allowable child and dependent care credit is shown below:
In the case when the income is below $35,000 than full 35% would be allowed
But the qualified child expense would be limited to $6,000
So, here the amount would be
= $6,000 × 35%
= $1,860
Already there is a pre credit tax liability so $0 should be considered as it would not received any credit
[Same investments as the prior question] Suppose two local start-ups are raising funding by issuing shares of equity at $10,000 per share. One start-up is a whiskey distillery; the other is a beer brewery. You estimate the expected returns on your investment to be 50% over five years in both cases. You also believe that the likelihood of being paid out $20,000 per share is greater with the distillery than with the brewery. Suppose now that you hold a portfolio of many other risky assets, and that this would be your N 1 investment. Which investment do you prefer to make, the distillery or the brewery
Answer:
you should purchase the brewery's stock
Explanation:
First of all, as investors we should always try to maximize our returns while avoiding risks. It is really hard to balance both, but we must compare stocks to see which may represent a higher gain while posing the lesser or same risk.
Initial investment in each = $10,000 (equal for both)expected returns over 5 years = $5,000 (equal for both)but there is a higher possibility of the distillery's stock being more valuable, and that makes a difference.Both stocks seem equally risky, but they are not. When you calculate expected returns, you multiply the possible returns by their probability. I'm not sure how they calculated the expected returns of the above stocks, but the following can help you understand my point:
stock B return probability expected return
great 100% 25% 25%
normal 50% 50% 25%
bad 0% 25% 0%
total 100% 50%
stock D return probability expected return
great 100% 30% 30%
normal 50% 40% 20%
bad 0% 30% 0%
total 100% 50%
Both stocks have the same expected return, but stock B is less risky because the chance of being a bad investment is lower.
suppose you want to open a shoe company sugges names for this
Answer:
New Kick
Boundless
Brave Sole
Laced
We sell to a customer paying with Visa and the fee is 2%. Part of the transaction would include a debit to:
Answer:
there are no available options, but the complete journal entry to record a credit card sale is:
Dr Cash account 98% of sale
Dr Credit card fees 2% of sale
Cr Sales revenue 100% of sale
Explanation:
Since VISA payments are automatic, you can debit cash directly. There is no need to debit accounts receivable and then once the payment is confirmed, debit cash. Some credit cards do not pay automatically, and in those cases you should debit accounts receivable.
Instead of credit card fees, some people use credit card discount, or credit card expense, but all these accounts are basically the same. They are all expense accounts.
For most consumers, maximizing utility through consumption generally means finding good deals in order to maximize the utility received for each dollar spent. However, some makers of luxury goods believe that their customers actually achieve utility by paying high prices. As a result, lowering prices may lead to reduced sales for the makers of luxury goods. How is this counterintuitive concept rationalized by analysis of consumer behavior and the utility maximization rule
Answer:
The explanation of that situation is below.
Explanation:
To begin with, the most important factor to have in mind in the situation explained above is the fact that we are talking about a "luxury good" and therefore that when it comes to this type of goods is better when the majority of the people do not possess or at least they must represent the fact that they are exclusive for only some part of the population. That is why that those goods use the strategy of increase always the price because that will means that they are not affordable for the majority of the society but only for a few and that will give to the owner of the good a sense of uniqueness and with that it also comes the sense of superiority. That is why that when it comes to this type of good the analysis change and it collides with the other theory of utility maximation.
4. Give two reasons why GDP is often not seen as the best measure of living standards.
Answer:
Different factors account to it.
Explanation:
Because many factors that contribute to people's happiness are not bought and sold, GDP is a limited tool for measuring standard of living. To understand it's limitations better, let's take a look at several factors that are not accounted for in GDP.
GDP does not account for leisure time. The US GDP per capita is larger than the GDP per capita of Germany, but does this prove that the standard of living in the United States is higher? Not necessarily since it is also true that the average US worker works several hundred hours more per year more than the average German worker. The calculation of GDP does not take German workers extra weeks of vacation into account.
GDP includes what is spent on environmental protection, healthcare, and education, but it does not include actual levels of environmental cleanliness, health, and learning. GDP includes the cost of buying pollution-control equipment, but it does not address whether the air and water are actually cleaner or dirtier. GDP includes spending on medical care, but it does not address whether life expectancy or infant mortality have risen or fallen. Similarly, GDP counts spending on education, but it does not address directly how much of the population can read, write, or do basic mathematics.
Q 20.27: Liberty Bicycles currently sells unassembled bikes for $240 each. The variable production costs for each bike are $35 and the fixed production costs are $72. Liberty is thinking about selling the bikes fully assembled for $300 each. The variable costs for assembling one bike will be $18 and the fixed costs will be $31. Given these figures, Liberty will increase its net income per unit by ________ if it opts to assemble the bikes.
Answer:
$11
Explanation:
Find the incremental effect on net income of assembling the bikes as follows :
Incremental analysis for assembling the bikes per unit
Sales ( $300 - $240) $60
Less incremental costs :
Variable costs ($18)
Fixed production costs ($31)
Incremental Income/(loss) $11
Conclusion
Thus Liberty will increase its net income per unit by $11 if it opts to assemble the bikes.
How do you think Alden, from Situation 2, found out about Revinate? Given all the online companies that might help your business connect you with customers, how would you choose one?
The correct answer to this open question is the following.
Although you forgot to include the proper context of the question or further references, we can comment on the following.
Alden found out about Revinate by searching on the web trying to find the best software options that could help the company to identify the customer's reviews so Gregory E. Alden could make the best decisions for his company.
Gregory E. Alden is the manager of the company Woodside Hotels, located in Northern California. He was trying to monitor the comments of his high-class clients because Woodside Hotels is in the luxurious hotel business. So knowing that constantly monitoring client's comments on social media pages such as TripAdvisor or Yelp can be an arduous and difficult task, Gregory searched for the best software company to monitor client's comments on social media. That is how he found Revinate, a company that helps managers to track reviews so they can make the best business decisions once they have learned what their customers desire. And that is exactly what I would do to choose the kind of company to know about the preferences of my customers.
Your grandpa doesn't trust "young 'uns" so you are set to inherit a $1,000,000 trust fund on your 50th birthday. Your Grandpa also doesn't like banks so he has buried the cash somewhere on his 40-acre farm in a location that will be revealed to you by his lawyer since Grandpa will not be around when you turn 50. If you could possibly get your hands on it now (when you are 20), you could put it in a bank at 6% annual interest. If you were able to dig up the money now, how much would you have when you turn 50?
Answer:
FV= $5,743,491.17
Explanation:
Giving the following information:
Present value (PV)= $1,000,000
Number of periods (n)= 30 years
Annual interest= 6% = 0.06
To calculate the future value (FV), we need to use the following formula:
FV= PV*(1+i)^n
FV= 1,000,000*(1.06^30)
FV= $5,743,491.17
CDB stock is currently priced at $85. The company will pay a dividend of $5.69 next year and investors require a return of 11.6 percent on similar stocks. What is the dividend growth rate on this stock?
Answer:
4.91%
Explanation:
CDB stock is currently priced at $85
The company will pay a dividend of $5.69
The required return is 11.6%
There for the dividend growth rate on this stock can be calculated as follows
11.6/100= (5.69/85) + growth rate
0.116= 0.0669 + growth rate
0.116 - 0.0669 = growth rate
0.0491 × 100 = growth rate
Growth rate = 4.91%
ear Net Income Profitable Capital Expenditure 1 $ 14 million $ 8 million 2 18 million 11 million 3 9 million 6 million 4 20 million 8 million 5 23 million 9 million The Hastings Corporation has 2 million shares outstanding. (The following questions are separate from each other). a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.)
Answer:
$42 Million
Explanation:
The computation of the total cash dividend is shown below:-
Year Net Income Profitable capital Expenditure Dividends
1 $14 Million $8 Million $6 Million
2 $18 Million $11 Million $7 Million
3 $9 Million $6 Million $3 Million
4 $20 Million $8 Million $12 Million
5 $23 Million $9 Million $14 Million
Total cash dividends $42 Million
Delphi Company uses job-order costing. It applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, Delphi estimated that it would work 37,000 machine-hours and incur $222,000 in manufacturing overhead cost. The following transactions were recorded for the year: a. Raw materials were issued for use in production, $367,000 ($345,000 direct and $22,000 indirect). b. Employee costs were incurred: direct labor, $309,000; indirect labor, $44,000; and administrative salaries, $155,000. c. Factory depreciation, $175,000. d. Selling costs, $140,000. e. Manufacture overhead was applied to jobs. The actual machine hours for the year were 35,000 hours. a. Compute the total manufacturing overhead cost applied to jobs during the year.
Answer:
Allocated MOH= $210,000
Explanation:
First, we need to calculate the predetermined overhead rate:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= 222,000/37,000
Predetermined manufacturing overhead rate= $6 per machine hour
Now, we cal allocate overhead:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Allocated MOH= 6*35,000
Allocated MOH= $210,000
is the present value of these cash flows? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Present value Investment X $ Investment Y $ (b) Which of these cash flow streams has the higher present value at 5 percent? (Click to select) Requirement 2: (a) If the discount rate is 23 percent, what is the present value of these cash flows? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Present value Investment X $ Investment Y $ (b) Which of these cash flow streams has the higher present value at 23 percent?
Answer and Explanation:
1A. For investment X, given 6% discount rate, 6700 PMT, N= 9 years
Present value of investment X= 6700* PVIF using 6%, 9 years
= $45751.34
For investment Y, given 6% discount rate, 9200 PMT, N= 5 years
Present value of investment Y =9200*PVIF using 6%, 9 years
=$38753.75
1B. Investment X from the above has higher present value
2A. For investment X, given 22% discount rate, 6700 PMT, N = 9 years
Present value of investment X
=6700*PVIF using 22% ,9 years
= $25368.11
For investment Y, given 22% discount rate, 9200 PMT, N = 5 years
Present value of investment X
=9200*PVIF using 22% ,N = 5 years
= $26345.49
2B. Investment Y from the above has higher present value.
Creswell Corporation's fixed monthly expenses are $30,000 and its contribution margin ratio is 63%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $92,000?
a. $27,960.b. $62,000.c. $57,960.d. $4,040.
Answer:
Net income= $27,960
Explanation:
Giving the following information:
Fixed costs= $30,000
contribution margin ratio= 0.63
Sales= $92,000
First, we need to calculate the total contribution margin:
Total contribution margin= 92,000*0.63= 57,960
Now, the net income:
Net income= 57,960 - 30,000
Net income= $27,960
Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,600, $1,800, $1,800, and $2,100. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Answer:
$8,348.51
Explanation:
Computation of the year 6 future value of deposits
6 years Future value = $1,600 × (1 + 0.04)^5+ $1,800 × (1 + 0.04)^4+ $1,800 × (1 + 0.04)^3+ $2,100 × (1 + 0.04)^2
6 years Future value= $1,946.64 + $2,105.75 + $2,024.76 + $2,271.36
6 years Future value= $8,348.51
Therefore the year 6 future value of deposits will be $8,348.51
Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,600 and will produce cash flows as follows: End of Year Investment A B 1 $ 8,600 $ 0 2 8,600 0 3 8,600 25,800 The present value factors of $1 each year at 15% are: 1 0.8696 2 0.7561 3 0.6575 The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment B is:
Answer:
Net present value $1,363.50
Explanation:
The computation of the net present value of B is shown below:
Year Cash flows PVIFA factor at 15% Present value
0 -$15,600 1 -$15,600
1 0 0.8696 0
2 0 0.7561 0
3 25,800 0.6575 $16,963.50
Net present value $1,363.50
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors require a return of 14 percent on the company's stock. a. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the stock price be in 3 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What will the stock price be in 7 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer:
(A) 20.54
(B) 24.46
(C) 30.88
Explanation:
(A) The current stock price can be calculated as follows
Po= 1.55(1+6/100)/(14/100-6/100)
= 1.55(1+0.06)/(0.14-0.06)
= 1.55(1.06)/0.08
=1.643/0.08
= 20.54
(B) The stock price after 3 years can be calculated as follows
Po = 1.55(1+6/100)^4/(14/100-6/100)
= 1.55(1+0.06)^4/(0.14-0.06)
= 1.55(1.06)^4/0.08
= 1.55(1.2624)/0.08
= 1.9567/0.08
= 24.46
(C) The stock price after 7 years can be calculated as follows
Po= 1.55(1+6/100)^8/(14/100-6/100)
= 1.55(1+0.06)^8/(0.14-0.06)
= 1.55(1.06)^8/(0.08)
= 1.55(1.5938)/0.08
= 2.470/0.08
= 30.88