a. Between 1959 and 1978, China saw an average yearly economic growth rate of 3.5%.
b. From 1979 through 1986, the average yearly economic growth rate was 10%.
How quickly is the economy expanding?The value difference between all goods and services produced during a specific time period and those produced earlier in the same time period, expressed as a percentage, is a country's economic growth rate. Using its growth rate, an economy's comparative health across time is determined.
Based on the 70 ruleAccording to the rule of 70, the number of years before a variable doubles can be estimated by dividing 70 by the rate of increase. Therefore, if we know the number of years it actually did take for a variable to double, we may modify the rule of 70 to determine the average growth rate, x.
[tex]\frac{70}{x}[/tex] = 20
[tex]\frac{70}{20}[/tex] = x
x= 3.5%
China's average yearly economic growth rate between 1959 and 1978 was 3.5%.
The rule of 70 suggests that real per capita GDP will double in just 7 years: [tex]\frac{70}{7}[/tex] = 10%
Between 1979 and 1986, the average yearly economic growth rate was 10%.
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The price of money is known as __________.
interest
inflation
insanity
bond
Answer:
I am not 100% sure but I think it is interest.
Explanation:
Kyle owned a small business that sold and repaired several styles of bicycles. Last month, Kyle had sales of $15,000 and the costs of operating his business were $12,300.
Which of the following is true about Kyle's business?
•
The business earned a profit.
•
The business should focus on expansion.
•
The business experienced a loss.
•
The business is not capitalizing on a need
Answer:
The business earned a profit.
Financial analysts have estimated the returns on shares of the Goldday Corporation and the overall market portfolio under two economic states nature as follows. For Goldday the state dependent returns are -0.04 in recession, and 0.10 in an economic boom. For the market the state dependent returns are -0.06 in recession,and 0.14 in boom. The analyst estimates that the probability of a recession is 0.50 while the probability of an economic boom is 0.50. Compute the covariance between Goldday and the market.'
Answer:
covariance = 0.0070
Explanation:
Given data :
probability of recession = 0.5 , probability of economic boom = 0.5
For Goldday corporation
During Recession
probability = 0.5
return on stocks = -0.04
expected return = 0.5 * - 0.04 = - 2.00%
deviation 1 = - 7% ( -0.04 - average return )
Prob * deviation ^2 = 0.5 * (- 7% )^2 = 0.002450
During Economic boom
probability = 0.5
return on stocks = 0.10
expected return = 0.5 * 0.10 = 5%
deviation 1 = 0.10 - average return = 7%
Prob * deviation^2 = 0.5 * ( 7%)^2 = 0.002450
Hence for Goldday corporation
average return = ∑ expected returns = 3%
variance = ∑ Prob * deviation^2 = 0.0049
std = √0.0049 = 7%
Note : perform the same calculation for the Market
For Market
average return = ∑ expected returns = 4%
variance = ∑ Prob * deviation^2 = 0.01000
std = √ variance = 10%
Determine the covariance between Goldday and the MARKET
= ∑ ( deviation 1 * deviation 2 * probability )
= recession + economic boom
= ( - 7% * - 10% * 0.5 ) + ( 7% * 10% * 0.5 )
= 0.0035 + 0.0035 = 0.0070 ---------> answer
Dess Inc., a manufacturing company, has provided the following data for the month of August. The balance in the Work in Process inventory account was $10,000 at the beginning of the month and $22,000 at the end of the month. During the month, the used direct material cost was $63,000, and direct labor cost was $39,000. The manufacturing overhead cost was $43,000.
1. The manufacturing costs for August was:
A. $59,000
B. $67,000
C. $145,000
D. $133,000
2. The cost of goods manufactured for August was:
A. $133,000
B. $142,000
C. $145,000
D. $130,000
Answer:
See below
Explanation:
1. Manufacturing cost. This is computed as
= Direct materials + Direct labor + Manufacturing overhead
= $63,000 + $39,000 + $43,000
= $145,000
2. Cost of goods manufactured. This is computed as;
= Beginning WIP + Direct materials + Direct labor + Allocated manufacturing overhead - Ending WIP
= $10,000 + $63,000 + $39,000 + $43,000 - $22,000
= $133,000
What is the difference between social marketing and advertising?
Answer:
Social media marketing is any social media action you take that is unpaid. If you're posting about your blogs, sharing info with your followers, or commenting in social media groups, you're marketing. Social media advertising is any action you take on social media that is paid.
Explanation:
Returns Outwards is the same as purchases returns.
2 points
True
False
Which of the followin
True because they are same
Under the perpetual inventory system, Village Fabrics purchased 25 yards of blue plaid fabric at a cost of $2.00 per yard on June 1; on June 3, 22 yards were sold of the blue plaid; a new shipment came in with 25 more yards at a cost of $2.25 per yard on June 5; on June 15, 17 yards of the blue plaid fabric were sold; Village Fabrics purchased another 25-yard bolt at a cost of $2.50 per yard on June 19; on June 27, 6 more yards had been sold. No inventory was on hand at the beginning of the month. What is the cost of merchandise sold and cost of inventory under the FIFO method for June
Answer:
see explanation
Explanation:
FIFO Assumes that the units to arrive first will be sold last. Therefore the cost of merchandise sold is based on the earlier or old prices and the cost of inventory is based in later or recent prices.
Manrow Growers, Inc., owns equipment for sowing and harvesting its organic fruit, vegetables, and tree nuts that are sold to local restaurants and grocery stores. At the beginning of 2019, an asset account for the company showed the following balances:
Equipment $350,000
Accumulated depreciation through 2018 165,000
During 2019, the following expenditures were incurred for the equipment:
Major overhaul of the equipment on January 1, 2019, that improved efficiency $42,000
Routine maintenance and repairs on the equipment 5,000
The equipment is being depreciated on a straight-line basis over an estimated life of eight years with a $20,000 estimated residual value. The annual accounting period ends on December 31.
Required:
Record the adjusting entry for depreciation on the equipment during 2018.
Answer: See explanation
Explanation:
The adjusting entry for depreciation on the equipment during 2018 will be calculated as:
Depreciation = (Equipment cost - Estimated residual value) / Estimated life
= ($350000 - $20000) / 8
= $41250
Debit: Depreciation = $41250
Credit: Accumulated depreciation = $41250
(To record depreciation for the year)
Which of the followings are true or false.
a. Under regional trade agreements, several countries eliminate tariffs among themselves and lower tariffs against all other countries.
b. Regional trade agreements contradict GATTâs most favored nation principle.
c. Each NAFTA member country keeps its own tariffs with the countries outside NAFTA.
d. A good imported into Mexico from China will not be granted duty-free access to the U.S. market if no value is added to this good in Mexico.
e. Rules of origin specify the types of goods that can be shipped duty-free within a free trade area.
f. Rules of origin specify the types of goods that can be shipped duty-free within a customs union.
Answer:
a. true
b. false
c. true
d. true
e. false
f. true
Explanation:
a. Regional trade agreements encourage free movement of goods and services across the borders of regional bodies.
b. The General Agreements on Tariffs and Trade (GATT) were concluded in Geneva by 23 countries in 1947. The GATT minimized international trade barriers through tariffs and trade regulations.
c. NAFTA means the North American Free Trade Agreement for Canada, Mexico, and the United States. NAFTA eliminated most of the trade tariffs among these three countries. In 2020, it was replaced by the United States-Mexico-Canada Agreement (USMCA).
d. Rules of Origin determines the source of a product because trade duties and restrictions depend on the country of origin of a product.
Dana Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2019 related to $900,000 of excess depreciation. In December of 2019, a new income tax act is signed into law that lowers the corporate rate from 40% to 30%, effective January 1, 2021. If taxable amounts related to the temporary difference are scheduled to be reversed by $450,000 for both 2020 and 2021, Dana should increase or decrease deferred tax liability by what amount
Answer:
$45,000 decrease
Explanation:
Calculation to determine the amount that Palmer should increase or decrease deferred tax liability
Increase or decrease deferred tax liability =$450,000 × (.30 - .40)
Increase or decrease deferred tax liability=-$45,000 decrease
Therefore Dana should DECREASE deferred tax liability by $45,000
Adkins Bakery uses the modified half-month convention to calculate depreciation expense in the year an asset is purchased or sold. Adkins has a calendar year accounting period and uses the straight-line method to compute depreciation expense. On March 17, 2018, Adkins acquired equipment at a cost of $220,000. The equipment has a residual value of $43,000 and an estimated useful life of 4 years. What amount of depreciation expense will be recorded for the year ending December 31, 2018
Answer:
Depreciation expense= $36,875
Explanation:
Under the straight line method of depreciation, the cost of an asset less the salvage value is spread equally over the expected useful life.
An equal amount is charged as annual depreciation over the life of the asset. The annual depreciation is calculated as follows:
Annual depreciation:
= (cost of assets - salvage value)/ Estimated useful life
Cost - 220,000
Residual value = 43,000
Estimated useful life = 4 years
Annual depreciation = (220,000- 43,000)/4 =44,250
Annual depreciation = 44,250.
Under the half-month convention, a full month depreciation is charged where an asset is first put to at the middle month of the month.
Thus March 17, 2018 to December 2018 is taken to be 10 full months
Depreciation expense = 44,250.× 10/12 = 36,875
Depreciation expense= $36,875
The OYB Company is performing an annual evaluation of two of its suppliers: X Company and the Y Company. You have collected the following information: Performance Criteria X Company Score Y Company Score Weight Product Availability 75 80 0.25 Responsive 75 80 0.10 On-time delivery 80 85 0.25 % of Delivery Correct/No Damage 90 95 0.15 Communication of Delays 95 65 0.15 Business (Info Sharing/Attitudes) 85 75 0.10 Total Score 82.5 80.75 Which statements are true? Group of answer choices If OYB designates scores of 70-90 as "Certified: meeting performance standards", both companies are "Certified" suppliers. X Company has a higher evaluation. Y Company moves to the "Preferred" category since the most important parameters, on-time delivery and product availability, are higher with Y Company. b and c only a and b only
Answer:
The OYB Company
The true statements are:
a. If OYB designates scores of 70-90 as "Certified: meeting performance standards", both companies are "Certified" suppliers.
b. X Company has a higher evaluation.
Therefore,
a and b only
Explanation:
a) Data and Calculations:
Performance Criteria X Company Score Y Company Score Weight Product Availability 75 80 0.25
Responsive 75 80 0.10
On-time delivery 80 85 0.25
% of Delivery Correct/
No Damage 90 95 0.15
Communication of Delays 95 65 0.15
Business
(Info Sharing/Attitudes) 85 75 0.10
Total Score 82.5 80.75
11) Domergue Corp. currently has an EPS of $3.76, and the benchmark PE for the company is 21. Earnings are expected to grow at 5.1 percent per year. (4 pts.) a) What is your estimate of the current stock price? b) What is the target stock price in one year? c) Assuming the company pays no dividends, what is the implied return on the company’s stock over the next year?
Answer:
(a) 78.96
(b) 82.99
(c) 5.10
Explanation:
The current stock price can be calculated as follows
= 3.76 × 21
= 78.96
The target stock price in one year can be calculated as follows
= 3.76(1+5.1%)×21
= 3.76×(1+0.051)×21
= 3.76×1.051×21
= 82.99
The implied return on company's stock over one year can be calculated as follows
= 82.99-78.96/78.96
= 4.03/78.96
= 0.0510× 100
= 5.10
Sunland Company purchased a new machine on October 1, 2022, at a cost of $80,360. The company estimated that the machine has a salvage value of $7,910. The machine is expected to be used for 70,800 working hours during its 7-year life. Compute the depreciation expense under the straight-line method for 2022 and 2023, assuming a December 31 year-end.
Answer:
Results are below.
Explanation:
Giving the following information:
Purchase price= $80,360
Salvage value= $7,910
Useful life= 7 years
To calculate the annual depreciation, we need to use the following method:
Annual depreciation= (original cost - salvage value)/estimated life (years)
Annual depreciation= (80,360 - 7,910) / 7
Annual depreciation= $10,350
2022:
Annual depreciation= (10,350/12)*2= $1,725
2023:
Annual depreciation= $10,350
The principal objectives of the human resource management process are to ______. Multiple select question. accrue liabilities for wages, payroll taxes, and employee benefit programs ensure that payroll costs are for legitimate entity activities record production and other types of payroll costs in accounts report compensation paid to consultants or contractors on IRS Form 1099
Answer:
ensure that payroll costs are for legitimate entity activities.
Explanation:
Human resources management (HRM) can be defined as an art of managing, controlling and improving the number of people (employees or workers), functions, activities which are being used effectively and efficiently by an organization.
Generally, human resources managers are saddled with the responsibility of recruiting, managing and improving the welfare and working conditions of the employees working in an organization.
The principal objectives of the human resource management process are to ensure that payroll costs are for legitimate entity activities because they make sure work attendance are taken, so as to record the number of times each employee reported to work and whether or not they were punctual on a daily basis.
You and your family visit Orlando for a week. While there, you decide to go to Universal Studios. When you arrive, you notice that each family member can buy a day pass for $115 or a two-day pass for $150. If you want a three-day pass, the price is $170. Suppose your benefit, measured in utility, is equal to $120 in value the first day you go to the park, $50 more if you go a second day, and $15 more for the third day. What ticket, if any, should you buy
Answer:
the second day ticket
Explanation:
We would purchase the ticket with the highest net benefit
Net benefit = Benefit - cost of ticket
First day
Net benefit = $120 - $115 = $5
Second day
Net benefit = ($120 + $50) - $150 = $20
Third day
Net benefit = ($170 + $15) - $170 = $15
The second day yields the highest net benefit
Newspapers in the nation of Hasalot report a significant increase in money supply during the past few months. This information indicates that Hasalot may experience a serious recession in the near future.
t or f
Newspapers in the nation of Hasalot report a significant increase in money supply during the past few months. This information indicates that Hasalot may experience a serious recession shortly. The above statement is true.
What do you mean by recession?When there is a general fall in economic activity, there is a recession, which is a contraction of the business cycle in economics. Recessions typically start when consumer spending falls dramatically across the board.
Recessions are defined as severe, widespread, and sustained declines in economic activity. Although it is generally accepted that two successive quarters of minus the gross domestic product (GDP) development indicate a recession, many people use more sophisticated metrics to determine if the economy is in a downturn.
Less money is moving around in the business as well as the stock market falls during a recession. Due to the uncertainties brought on by growing inflation, novice investors will dump their equities. People start to leave the stock market in search of more money and security, which drives down share values even more.
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as an austrian-thai company, red bull has done a remarkable job of positioning itself internationally by coming across as a local company in every country where red bull is sold. Would you be more or less likely to buy redbull knowing the brand is austrian but with a strong tahi influence? Does it generally mattter to consumers where a product orignates from?
No
It does not actually matter, because what we buy is the quality of the product not where the product is from.
Rouse Corporation's December 31, 2012 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 20,000 shares authorized 10,000 shares issued $150,000 Common stock, $10 par value, 2,000,000 shares authorized 1,950,000 shares issued, 1,930,000 outstanding 19,000,000 Paid-in capital excess of par --- preferred stock 60,000 Paid-in capital excess of par --- common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (20,000 Shares) 630,000 Rouse's total stockholders' equity was:
Answer:
See bellow
Explanation:
With regards to the above, Rouse total stockholder's equity is computed as;
= Preferred stock + common stock + paid in capital in excess of par (preferred stock and common stock) + retained earnings - Treasury stock
= $150,000 + $1,950,000 + $60,000 + $27,000,000 + $7,650,000 - $630,000
= $53,730,000
Contribution Income Statement and Operating Leverage
Willamette Valley Fruit Company started as a small cannery-style operation in 1999. The company now processes, on average, 20 million pounds of berries each year. Flash-frozen berries are sold in 30 pound packs to retailers. Assume 650,000 packs were sold for $75 each last year. Variable costs were $42 per pack and fixed costs totaled $14,250,000.Enjoy the berry best blueberries in the world!" The selling price is $90 per crate, variable costs are $80 per crate, and fixed costs are $280,000 per year. In the year 2017, Stateline Berry Farm sold 50,000 crates.
Prepare a contribution income statement for the year ended December 31, 2017. HINT: Use a negative sign with both "costs" answers.
STATELINE BERRY FARM
Contribution Income Statement
For the Year Ended December 31, 2017
Sales
Variable costs
Contribution margin
Fixed costs
Net income
Answer:
See below
Explanation:
Contribution income statement for the year ended, December 31, 2017
Sales ($90 per crate × 50,000 crates)
$4,500,000
Less:
Variable costs ($80 per crates × 50,000 crates)
($4,000,000)
Contribution margin
$500,000
Less:
Fixed costs
($280,000)
Net income
$220,000
What does the CVS Health Corporate Integrity agreement reinforce?
Explanation:
OLICY SUMMARY
CVS Health® (the “Company”) entered into a Corporate Integrity Agreement (“CIA”) with the
Office of Inspector General, Department of Health and Human Services (“OIG”) in October
2016 to resolve allegations concerning certain business practices of the Company’s Omnicare®
business unit. The CIA requires that CVS Health develop and implement a Policy regarding
certain federal healthcare program requirements and make this Policy available to “Covered
Persons”, which is a defined term under the CIA, and includes certain colleagues, vendors,
subcontractors, customers and other third parties.
This Policy outlines the requirements for Covered Persons as required by the CIA. Specifically,
this Policy is designed to ensure that Covered Persons understand the elements of the Anti-
Kickback Statute and Stark Law and the obligation to report violations and/or seek guidance
when necessary. The Company is committed to complying with all Federal health care program
It reinforces strong commitment to compliance with the law.
Corporate Integrity Agreements are those agreements that exists between the the department of health of the United States and the CVS which is a health provider.
These Corporate Integrity Agreements reinforces the willingness to comply with the law and to stay strongly committed to high ethical standards.
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Which of the following principles are important to keep in mind when establishing a forecasting process within your organization: A) Convergence: Allowing individuals within your organization to discuss and brainstorm together as a group before submitting their forecasts to ensure that they have as much relevant information as possible. B) Incentives: Ensuring that individuals are incentivized to report their forecast accurately. C) Diversity: Invite a diverse set of individuals from across the company to participate in the forecasting process.
Answer: A, B, and C
Explanation:
When forecasting, it is important that the cognitive resources of a diverse range of people are used. This is why it is important that a diverse set of individuals in the organization are allowed to discuss and brainstorm together as a group so as to come up with the best forecasts.
Individuals should also be incentivized to forecast accurately. These incentives can either reward accuracy or punish overforecasting such that the individuals try their best to forecast accurately.
Record the following transactions as general journal entries. Use the gross-price method.
Aug. 6 Purchased $830 of merchandise on account from Johnston Co. Credit terms 2/10, n/30.
8 Bought an $18,000 truck from Pillner Co., paying $3,000 down; balance on account.
13 Purchased $2,611 of merchandise for cash from Pillner and Co.
15 Paid for the August 6 purchase of merchandise from Johnston Co.
17 Purchased $1,743 of merchandise from Luis Co. Credit terms 2/10, n/30.
Answer:
General Journal Entries:
Aug. 6 Debit Inventory $830
Credit Accounts Payable (Johnston Co.) $830
To record the purchase of merchandise; Credit terms 2/10, n/30.
Aug. 8 Debit Truck $18,000
Credit Accounts Payable (Pillner Co.) $15,000
Credit Cash $3,000
To record the purchase of truck.
Aug. 13 Debit Inventory $2,611
Credit Cash $2,611
To record the purchase of inventory for cash.
Aug. 15 Debit Accounts Payable (Johnston Co.) $830
Credit Cash $813
Credit Cash Discounts $17
To record the payment on account, including discounts.
Aug. 17 Debit Inventory $1,743
Credit Accounts Payable (Luis Co.) $1,743
To record the purchase of goods; Credit terms 2/10, n/30.
Explanation:
a) Data and Analysis:
Aug. 6 Inventory $830 Accounts Payable (Johnston Co.) $830
Credit terms 2/10, n/30.
Aug. 8 Truck $18,000 Accounts Payable (Pillner Co.) $15,000 Cash $3,000
Aug. 13 Inventory $2,611 Cash $2,611
Aug. 15 Accounts Payable (Johnston Co.) $830 Cash $813 Cash Discounts $17
Aug. 17 Inventory $1,743 Accounts Payable (Luis Co.) $1,743
Credit terms 2/10, n/30.
Simon lost $7,100 gambling this year on a trip to Las Vegas. In addition, he paid $2,730 to his broker for managing his $273,000 portfolio and $500 to his accountant for preparing his tax return. In addition, Simon incurred $3,390 in transportation costs commuting back and forth from his home to his employer's office, which were not reimbursed. Calculate the amount of these expenses that Simon is able to deduct (assuming he itemizes his deductions).
Answer:
The Deductible amount = $0
Explanation:
The Deductible amount = $0
Reason -
Gambling losses are deductible to extent of winnings. As there is no winning, loss of $7,100 is not deductible.
Simon paid $2,730 to his broker for managing his portfolio and $500 to his accountant for preparing his tax return.
Both investment fees and tax preparation fees were in the past (before 2018) allowed under miscellaneous itemized deductions to the extent the total miscellaneous itemized deductions exceeded 2 percent of taxpayer's adjusted gross income.
However, in 2018 miscellaneous itemized deductions are no longer available.
Hence for 2018 investment fees and tax preparation fees are not deductible.
Transportation Cost of $3,390 for commuting back and forth from home to employer's office is not deductible.
As per IRS commuting expenses are personal expense.
As such:
Deductible amount = $0
Arizona Desert Homes (ADH) constructed a new subdivision during 2020 and 2021 under contract with Cactus Development Co. Relevant data are summarized below: Contract amount $ 3,000,000 Cost: 2020 1,200,000 2021 600,000 Gross profit: 2020 800,000 2021 400,000 Contract billings: 2020 1,500,000 2021 1,500,000 ADH recognizes revenue over time with respect to these contracts. What would be the journal entry made in 2020 to record revenue
Answer:
Dr Construction $800,000
Dr Cost of construction $1,200,000
Cr Revenue form long-term contracts $2,000,000
Explanation:
Preparation of the journal entry made in 2020 to record revenue.
Based on the information given What would be the journal entry made in 2020 to record revenue is
Dr Construction $800,000
Dr Cost of construction $1,200,000
Cr Revenue form long-term contracts $2,000,000
($800,000+$1,200,000)
(Being to record revenue)
In the current year, Jeanette, an individual in the 24% marginal tax bracket, recognized a $20,000 long-term capital gain. Also in the current year, Parrot Corporation, a calendar year C corporation, recognized a $20,000 long-term capital gain. Neither taxpayer had any other property transactions in the year. What tax rates are applicable to these capital gains
Answer:
Capital gains tax rate applicable to Jeanette
Capital gains tax rate applicable to Parrot Corporation
Explanation:
Jeanette's capital gains tax liability = $20,000 x 15% = $3,000
Parrot Corporation's capital gains tax liability = $20,000 x 21% = $4,200
Corporations pay the same tax rate for ordinary income or for capital gains, but individuals have different tax rates.
at a higher price the quantity supplied of a product typically is
higher or lower
Answer:
The law of supply states, that higher prices lead to higher quantities of things.
Explanation:
I searched it up. I was confused. Sorry for searching it up.
Raspberry Company's actuary has computed its prior service cost to be $8,000,000. Raspberry amortizes the prior service cost by the straight-line method over the remaining 20-year service life of its active employees. During the current year, Raspberry also recognizes service cost of $560,000 and interest cost of $100,000. At the beginning of the year, the plan assets were $1,500,000, and the company expects to earn 10% on its plan assets. Compute Raspberry's pension expense for the current year.
Answer: $910,000
Explanation:
Pension expense is calculated by the formula:
= Prior Service cost for the year+ Service cost + Interest cost - Expected return on plant assets
Prior Service cost = Prior service cost / Service life of active employees
= 8,000,000 / 20
= $400,000
Expected return on plan assets = Plan assets * Interest rate
= 1,500,000 * 10%
= $150,000
Pension expense = 400,000 + 560,000 + 100,000 - 150,000
= $910,000
Lewis Co. reports the following results for May. Prepare a flexible budget report showing variances between budgeted and actual results.
Budgeted Actual
Sales 950 per unit $1,470,000
Variable expenses 380 per unit 588,000
Fixed expenses (total) $144,500 135000
Units produced and sold 1,530 1,330
List variable and fixed expenses separately.
Answer:
See below
Explanation:
Variance
Sales $1,263,500 $1,470,000 $206,500 Favourable
Less:
Variable expenses ($505,400) ($588,000) $82,600 Unfavorable
Contribution $758,100 $882,000 $123,900 Favourable
Less:
Fixed cost ($144,500) ($135,000) Favourable
Income(loss) $613,600 $747,000 $133,400 Unfavourable
13) Storico Co. just paid a dividend of $3.15 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on the company’s stock is 12 percent, what will a share of stock sell for today? (4 pts)
Answer:
$61.29
Explanation:
Calculation to determine what will a share of stock sell for today
First step is to calculate the price in Year 3
P3= $3.15(1.20)(1.15)(1.10)(1.05) / (.12 – .05)
P3= $5.020785/0.07
P3=$71.72
Now Let Calculate the price of stock today using the Present Value (PV) of the first three dividends in addition with the Present Value (PV) of the stock price in Year 3:
P0= $3.15(1.20)/(1.12) + $3.15(1.20)(1.15)/1.12^²+ $3.15(1.20)(1.15)(1.10)/1.12^³+ $71.72/1.12^³
P0=$3.78/1.12+$4.347/1.2544+$4.7817/1.404928+$71.72/1.404928
P0=$3.375+3.465+3.4035+$51.048
P0= $61.29
Therefore what will a share of stock sell for today is $61.29