BUSINESS COLLEGE

The current (year 0) price of the shares of Company XYZ is $50. There are 1 million shares outstanding. Next year (year 1)’s dividend per share is $2, which represents a 60% payout from earnings (net income). Investors expect a ROE of 20%, and a constant growth. 1. What will be the dividend per share in year 2 and year 3?

2. What is the current market value of the firm?

3. What will be the value of the firm next year after the payout?

Answers

Answer 1

Answer:

Answer:

1. The dividend per share in year 2 would be $2.16.

The dividend per share in year 3 would be $2.3328

2. The market value of the firm is $50 million

3. The value of the firm next year after the payout is $ 54

Explanation:

1. In order to calculate the dividend per share in year 2 and the dividend per share in year 3 we would have to make the following calculation:

dividend per share in year 2=dividend per share in year 1*(1+Growth Rate)

dividend per share in year 1=$2

Growth Rate=Retention Ratio * ROE

Growth Rate=40% * 20%

Growth Rate=8%

Therefore, dividend per share in year 2=$2*(1+8%)

dividend per share in year 2=$2.16

dividend per share in year 3=dividend per share in year 2*(1+Growth Rate)

dividend per share in year 3=$2.16(1´8%)

dividend per share in year 3=$2.3328

2. In order to calculate the current market value of the firm we would have to make the following calculation:

market value of the firm=Currect Share Price * Number of outstanding shares

According to the given data:

Currect Share Price=$50

Number of outstanding shares=1 million shares

market value of the firm=$50*1 million shares

market value of the firm=$50 million

3. In order to calculate the value of the firm next year after the payout we would have to calculate first the rate of return as follows:

value of the firm =dividend per share in year 1/rate of return-growth rate

$50* Rate of Return - 4 = $2

Rate of Return = 6 / 50

Rate of Return =12%

Therefore, value of the firm next year after the payout=dividend per share in year 2/rate of return-growth rate

value of the firm next year after the payout=$2.16/0.12-0.08

value of the firm next year after the payout=$ 54

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At the last minute, Jenna considers investing in Coca-Cola stock at a price of $55.55 per share. The stock just paid an annual dividend of $1.76 and she expects the dividend to grow at 4% annually. If the next dividend is due in one year, what expected return is Coca-Cola stock offering

Answers

Answer:

the expected return is Coca-Cola stock offering is 7.3%

Explanation:

The computation of the expected return is shown below:

Expected return is

= (D1 ÷ Current price) + Growth rate

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= (1.8304 ÷ 55.55) + 0.04

= 7.3%

Hence, the expected return is Coca-Cola stock offering is 7.3%

The same is to be considered

We simply applied the above formula

EA11. LO 2.3Markson and Sons leases a copy machine with terms that include a fixed fee each month plus a charge for each copy made. Markson made 9,000 copies and paid a total of $480 in January. In April, they paid $320 for 5,000 copies. What is the variable cost per copy if Markson uses the high-low method to analyze costs?

Answers

Answer:

0.04$ per copy

Explanation:

The high- low cost method for calculating variable cost per unit can be calculated through the following formula:

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Variable cost per unit=480-320/9000-5000

=0.04$ per copy

Jay's lease payments are made at the end of each period. Jay's liability for a capital lease would be reduced periodically by theA. Minimum lease payment less the portion of the minimum lease payment allocable to interest.B. Minimum lease payment plus the amortization of the related asset.C. Minimum lease payment less the amortization of the related asset.D. Minimum lease payment.

Answers

Answer:

A is the correct option.

Explanation:

Lease payment is similar to rent which is dictated under the contract between the two parties, which grants participants the legal right for using the real estate holding computers, software and other assets for a specified period of time. The time period for paying lease payment can range a monthly basis to long lengths of 100 years or more. The lease payment is decided by factors such as assets' value, discount rates, and the lessee's credit score.

3. Explain why price is equal to marginal revenue in pure competition but not in a monopoly. Include in your explanation why the marginal revenue curve is steeper than the demand curve for a single price monopolist?

Answers

In a perfect competition market, the Marginal Revenue is equal to the price (MR = P), and for monopolist, the marginal revenue is not equal to the price, because changes in quantity of output affects the price.

Why is price equal to Marginal revenue in pure competition?

Marginal revenue (MR) is an increase in the total revenue resulting from an increase in one unit of product. As the price always remains constant in perfect competition, increasing the total revenue from the production of 1 additional unit will be equal to the price.

Therefore, Price = Marginal Revenue (P = MR) in perfect competition.

In a monopoly the demand curve is the same as the firm's demand curve, in that the industry demand curve drops downwards. One owner can set the price or quantity and not both.

If one is determined the price of the other will be determined by the demand function. Increasing the monopolist's profit also requires that the marginal cost should be equal to the marginal revenue as if it were in perfect competition.

The Marginal revenue curve is steeper than the demand curve because a straight line is market demand. The firm will have to lower the Product Price if it wants to sell more of its product a unit of sale sold average revenue equal to the Price.

So the AR curve of AR monopolist and perfect competition MR and AR are both same.

Thus, this is the reason why the marginal revenue curve is steeper than the demand curve in the case of a monopolist.

To learn more about Marginal revenue, refer to the link:

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Answer:

The answer is in a perfect competition profit is maximized when marginal cost equal marginal revenue and price is equal to average revenue and marginal revenue, while in monopolist profit is maximized when marginal cost is equal to marginal revenue.

Explanation:

The firm in a perfectly competitive market is a price taker,the price in the market is determined by the market forces of demand and supply. The firm has to sell their product at the ruling market price.The demand curve facing the firm in perfectly competitive market is horizontal or perfectly elastic, profit is therefore maximized when the marginal cost is equal to average revenue and marginal revenue. The firm in the market operate at the output level in which the price and marginal revenue is equal to marginal cost. Whatever prices that change the market demand or supply will change the demand curve faced by the firm.The firm cannot do anything to this than to accept the market price and the demand curve.

In a monopoly the demand curve is identical to the demand curve of the firm, because industry demand curve is downward sloping.The monopolist can either set the price or quantity not the two.when one is determined the value of the other will be determined by the demand function. The profit maximization of the monopolist also requires that marginal cost must be equal to marginal revenue just like in the case of perfect completion.when the monopolist equates MR and MC the monopolist determines its output and the market price for the product. The revenue curve is steeper than the demand curve,because the straight line is the market demand. The firm will have to reduce The price of the product if they want to sell more of their product the unit of the product sold is the AR which is equal to the price.Therefore the AR curve of the monopolist and the perfect competition MR and AR are both identical that informed the reason why the marginal revenue curve is steeper than the demand curve for a single price monopolist.

Amie was recently hired at Kreigmeister Industries as a repairperson. She was informed that if she chose not to join the union representing her fellow repair workers, she would still have to pay a fee to the union. Apparently, Kreigmeister operates under a(n):A. illegal arrangement, since nonmembers can never legally be required to pay fees to unions.B. closed shop agreement.C. union shop agreement.D. agency shop agreement.

Answers

Answer:

The correct answer is letter "D": agency shop agreement.

Explanation:

Agency shop agreement is a union arrangement that allows employers to hire union and non-union workers without affecting the company's organization. In some cases, workers must join the union to keep the job, while in others, they could decide not to join the union but they must pay a fee to cover the expenses of collective bargaining.

Prepare general journal entries to record these transactions using the following titles: Cash (101); Accounts Receivable (106); Office Supplies (108); Office Equipment (163); Automobiles (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); Common Stock (307); Dividends (319); Fees Earned (402); Salaries Expense (601); and Utilities Expense (602).

Answers

Answer:

Eric Pense Journal Entries:

a. Dr Cash$23,000

Dr Office Equipment12,000

Cr Pense, Capital$35,000

b. Dr Land $8,000

Dr Building $33,000

Cr Cash$15,000

Cr Notes payable$26,000

c.Dr Supplies 600

Cr Accounts payable$600

d.Dr Automobile$7,000

Cr Capital$7,000

e.Dr Office Equipment$1,100

Cr Accounts payable$1,100

f.Dr Salary $800

Cr Cash$800

g.Dr Cash$2,700

Cr Fees Earned$2,700

h. Dr Utilities Expense$430

Cr Cash$430

i.Dr Account payable$600

Cr Cash$600

J. Dr Office Equipment $4,000

Cr Cash$4,000

k. Dr Accounts receivables$2,400

Cr Fees Earned$2,400

l. Dr Salary$800

Cr Cash$800

m. Dr Cash$1,000

Cr Accounts Receivable$1,000

n.Dr Pense, Withdrawal$1,050

Cr Cash$1,050

Explanation:

Final answer:

To record the transactions using the given account titles, journal entries need to be prepared. Each transaction must be debited and credited to the appropriate accounts based on the nature of the transaction.

Explanation:

In order to record the transactions provided, journal entries need to be prepared using the given account titles. Here is an example of how to record a transaction using these accounts:

On June 1, the company received $5,000 cash from a customer as payment for services rendered.
The journal entry to record this transaction would be:
Debit: Cash (101) $5,000
Credit: Fees Earned (402) $5,000

Continue the same process for all other transactions, making sure to debit and credit the appropriate accounts based on the nature of the transaction. Use the given account numbers to assign each entry to the correct account.

Overall, journal entries are used to record the financial transactions of a business, showing how money is received or spent and the impact on various accounts.

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