4. The following information is available for ABC Company. Earnings per share:Rs.5.00 Rate of return required by shareholders: 16 percent. Assuming thatthe Gordon valuation model holds, what rate of return should be earned oninvestments to ensure that the market price is Rs. 50 when the dividendpayout is 40 percent?

Given information : EPS ₹ 5.00 ROE 16% Market price ₹ 50.00 DPR 40% Since…

Answered: n model holds, wl that the mark ure

Business

Finance

n model holds, wl that the mark ure

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 7P

See similar textbooks

Related questions

Q: 1. Which of the following models for mathematics of the financial markets is dependent on expectatio...

A: "Since you have asked multiple question we would be solving first question ,If you want any specific...

Q: Natalia’s aunt went to Europe and forgot to pay her $840 mortgage payment on her New Hampshire ski h...

A: The question is to find the rate of interest rate. The interest rate is the amount a lender charges ...

Q: 32. A student plan to deposit P1,500 in the bank now and another P3,000 for the next 2 years. If he ...

A: The effective interest rate connected with an investment or loan is described by the effective yearl...

Q: how much is in the account after 12 years? How much of this is interest?

A: When equal payments are made at equal time intervals, it is called annuity. The payments like monthl...

Q: If you deposit $100 today and $200 in two years in an account that earns 10% annual interest, how mu...

Q: What is the future value of $20 a week for 10 years at 6% interest? Assume the first payment occurs ...

A: Number of weeks in 10 years = 10 x 52 = 520 Interest rate per week = 6%/52 = 0.1153846% = 0.00115384...

Q: Win Corporation is considering the purchase of wood cutting equipment. Data on the equipment are as ...

A: Under straight line depreciation, equal amount is being charged as depreciation in every year of ass...

Q: Kames Bhd and Vaish Bhd operate their businesses within the same industry, the inherent business ris...

A: Earning Per Share: It is used to estimate company's value and is calculated by dividing net profit w...

Q: Suppose that $6,000 is placed in a bank account at the end of each quarter over the next 10 years. W...

A: Quarterly payment (Q) = $6000 n = 10 years = 40 quarters Interest rate = 13%

Q: National Co. has an inventory conversion period of 60 days, a receivable conversion period of 35 day...

A: The Cash Conversion Cycle (CCC) is one of the various quantitative indicators that may be used to as...

Q: Which of the following statements describing the elements of intrinsic valuation is most accurate? ...

A: The present value of an asset or project is computed to determine which investment must be selected....

Q: gage Dr. Gupta is considering a 30-year mortgage at 6% interest. She can make payments of $3500 a mo...

A: The amount of mortgage one can afford depends on the time and interest rate of the money.

Q: Dalagang Pilipina Company needs ₱5,000,000 short-term credit for 90 days. To produce the amount, the...

A: The company wants 5,000,000 in hand after 15% discount on issued amount and after incurring 90,000 (...

Q: A company estimates that if a certain machine undergoes a major overhaul, its output can be increase...

A: " Hi, Thanks for the Question. Since you asked multiple question, we will answer first question for ...

Q: What will $205,000 grow to be in 7 years if it is invested today in an account with an annual intere...

A: Investment amount (PV) = $205,000 Interest rate (r) = 12% Period (n) = 7 Years

Q: 1. An annuity and an annuity due that have the same number of payments also have the same present va...

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only on...

Q: 14. The GJE company has a contract with a hauler to transport its naphtha requirements of 3,600,000 ...

A: Working Note #1 Calculation of Depreciation: Depreciation = (First cost - Salvage value) / Life Depr...

Q: Ryngard Corp’s sales last year were $43,000 and it’s accounts recivable were $16,000. What was its D...

A: The question is related to Average Collection period. The Average Collection period or Days Sales Ou...

Q: Which is a better choice in buying a computer worth $12,700.00? Choose from the following options: ...

A: Time Value of Money: According to the time value of money, a basic financial principle, money receiv...

Q: What is meant by the goal of maximization of shareholder wealth?

A: Shareholders are the owners of a company and they are the people who hold shares of the business. Th...

Q: What is the net cash flow in Year 2?

A: Net Cash Flow: It represents the difference between a firm's cash inflow and cash outflow for a giv...

Q: Which one of the following is part of other comprehensive income (OCI)? Multiple Choice Sale of c...

A: other comprehensive income (OCI) means those income , expenses , gains and losses which are yet to b...

Q: Calculate the net profit margin for a mixer sold for $125 that has an $80 cost of goods sold and 20%...

Q: Assuming a 8% discount rate throughout: Beginning today (time 0), you deposit $5,000 (per period) i...

A: Hi, the calculations in part c are done using the Goal seek function of excel to determine the value...

Q: Which of the following statements is / are TRUE about the payback period method of investment apprai...

Q: Consider the following statement: "If you are 20 years of age and save $1.00 each day for the rest o...

A: The rate of inflation reduces the purchasing power of money due to an increase in the price of commo...

Q: What is the association between interest rates and bond prices? a They move in the same directio...

A: Bond prices represent the present value of all future cash flows by way of interest payments and pri...

Q: A 20-year, 10% monthly-pay bond has a par value of $1,000. If the price of the bond is $887.14, its ...

A: Face value = $1,000 Current price of the bond = $887.14 Time (in years) = 20 years Coupon rate = 10%...

Q: Mercu Jaya currently has 20 workers who work 8 hours per day and 25 days a month. The labor hours re...

A: Working hours per day = 8 Hours Number of days per month = 25 days Labor hours required to produce o...

Q: The British government has a bond outstanding that pays £100 in interest each year for 18 years. Ass...

A: Present Value can be calculated using PV function in excel PV (rate, nper, pmt, [Fv], [type]) Rat...

Q: Local Co. has sales of $10.7 million and cost of sales of $6.4 million. Its selling, general and adm...

A: Answer- First three subparts solved. Part a) Calculation of Gross Margin - GIven, Sales = $10.70 ...

Q: 4-1 What is the monthly payment for the conventional mortgage? Do they qualify for the conventional ...

A: Mortgage: A mortgage represents the loan taken by the borrower from the lender to purchase houses an...

Q: Consider a 16-year, $1,000 par value, 4% semiannual-pay bond that is currently trading at a flat pri...

A: Current yield is a rate of return of bond using the market price of the bond. It is calculated with ...

Q: The Growth Firm forecasts that its cash flows will increase by 5% per year indefinitely and the divi...

Q: Midland Metalworking is examining a 750-tonne hydraulic press and a 600 tonne moulding press for pur...

A: The annual worth is the equivalent uniform annual cost of an asset over its life cycle.It is calcula...

Q: 0,000. If the firm follows a maturity matching or moderate working capital financing policy, what is...

A: Working capital finance policy is concerned with both the sources and quantity of working capital th...

Q: Angel owned a property costing Php. 2,000,000.00. She exchanged her property with the lot of Princes...

A: Cost of property for Angel Php 2000000 FMV of the property by princess Php 2500000 Additional ca...

Q: (Refer to this word problem Samuel wishes to have P500,000 available for his son's college education...

Q: Consider a five-year, default-free bond with annual coupons of 5% and a face value of $1,000 and ass...

A: Face value (F) = $1000 Annual coupon (C) = 5% of $1000 = $50 n = 5 years Let r = YTM

Q: What is the future value factor for a cash flow to be received in seven years, where the interest ra...

A: Interest rate (r) = 15% Period (n) = 7 Years

Q: An engineer paid P 110,000 for a P 100,000 bond that pays P 4,000 per year. In 20 years, the bond wi...

A: Here, Present Value of Bond or Price paid for Bond (PV) is P110,000 Face Value of Bond is P100,000 R...

Q: Gary’s Pipe and Steel company expects sales next year to be $910,000 if the economy is strong, $655,...

A: Forecasting refers to the process of estimating the figures for the future. This is based on histori...

Q: The firm is formed to purchase and operate a vehicle. The purpose of the vehicle is to operate a ta...

A: Here, Vehicle acquisition cost is $ 30,000 Years of useful life (economic life) is1 Tax rate is 20%...

Q: Roberta borrowed $1639 she agreed to repay it into equal payments to be made in 40 days and 110 days...

A: Focal date refers to the date at which equivalent amount of all future and past payments related to ...

Q: A BBB-rated corporate bond has a yield to maturity of 13.6%. A U.S. Treasury security has a yield to...

A: a. Let's assume the face value of the Treasury bond is $1. Determine the price of Treasury bond (as ...

Q: Question 2 Complete the Contingency Budget for the table below If risk C and F actually occurred, ...

A: Contingency Budget is the component of financial planning where individuals and organizations estima...

Q: solve the given annuity: P1,500 deposited at the beginning of each month for 2 years at 9% compounde...

A: Since it is not mentioned in the question, it is solved for present value as well as future value al...

Q: (Refer to this word problem ) The accumulated value of a 3-month loan of P5,000 is P5,085. What is t...

A: Loan amount = P5000 Accumulated value = P5085 Interest amount = 5085-5000 = P85 Period = 3 Months = ...

Q: · Given the following cash flows, determine the equivalent uniform cash flow at 9% interest. Draw th...

A: Interest rate (r) = 9% We need to find the PV of cashflows first.

Q: You have just learned that ZYK corporation offers an investment opportunity that costs P 5,000 every...

A: The future value of series of payment can be calculated from monthly deposit made at the end of each...

Concept explainers

Balance Sheet Regulations

A balance sheet is a financial statement that shows the position of a company's assets and liabilities on a specific date. The balance sheet is prepared after preparing the statement of profit and loss statement (income statement). The balance sheet and other financial statements differ in the sense that the balance sheet shows the financial position at any given point in time. In contrast, the other financial statements show the financial performance over a particular duration.

Question

4. The following information is available for ABC Company. Earnings per share:
Rs.5.00 Rate of return required by shareholders: 16 percent. Assuming that
the Gordon valuation model holds, what rate of return should be earned on
investments to ensure that the market price is Rs. 50 when the dividend
payout is 40 percent?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The Cost of Equity and Flotation Costs Messman Manufacturing will issue common stock to the public for $30. The expected dividend and the growth in dividends are $3.00 per share and 5%, respectively. If the flotation cost is 10% of the issue’s gross proceeds, what is the cost of external equity, re?
Ratio Analysis MJO Inc. has the following stockholders equity section of the balance sheet: On the balance sheet date, MJOs stock was selling for S25 per share. Required: Assuming MJOs dividend yield is 1%, what are the dividends per common share? Assuming MJOs dividend yield is 1% and its dividend payout is 20%, what is MJOs net income?
Reno Revolvere has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio?
The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company’s stock currently trades at $60 per share. Compute the stock’s earnings per share (EPS). What is the stock’s P/E ratio? Determine what the stock’s dividend yield would be if it paid $1.75 per share to common stockholders.
The following information is collected from the current annual report of XYZ Ltd: Earning of firm Rs. 9, 00,000 Number of equity shares 1, 50,000 Return on Equity 22.5% Cost of equity 15%What should be the dividend payout ratio so as to keep the share price at Rs. 48 byusing Walter Model? Also, determine the optimum dividend payout ratio and themarket price of share at the optimum dividend payout ratio. What will themaximum and minimum share price under this model?
North Side Corp’s dividends for year 1, year 2, year 3, and expected share price for year 3 are: D1=$1.95, D2=$2.10, D3=$2.18, and P3=$95 respectively. What is the company’s current share price given the required return of 8 percent?