Answer: See explanation
Explanation:
The journal entry to record the purchase of raw materials is analysed below:
November:
Dr Raw materials $86000
Cr Cash or account payable $86000
It should be noted that as the raw material is increasing, the raw material account will be debited while as the cash or account payable I decreasing, it is credited.
Slotnick Chemical received $280,000 from customers as deposits on returnable containers during 2021. Fifteen percent of the containers were not returned. The deposits are based on the container cost marked up 20%. How much profit did Slotnick realize on the forfeited deposits
Answer:
$7,000
Explanation:
The computation of the profit that should realize on the forfeited deposits is given below:
Deposited forfeited is
= $280,000 ×15%
= $42,000
Now the cost of the discount forfeited is
= $42,000 ÷ (100 + 20%$)
= $35,000
So, the profit realized is
= $42,000 - $35,000
= $7,000
Sarbanes-Oxley Act requires which of the following:
a. An effective internal control
b. Light penalties for violators
c. Auditors must evaluate internal controls
d. Auditor's work overseen by Public Accounting Board
Answer:
The correct answer is the option A: An effective internal control.
Explanation:
To begin with, the name of "Sarbanes-Oxley Act" refers to the well known United States federal law whose main purpose is to set new requirements, or at least expand them, regarding the boards and management areas of public companies of the US. It was enacted in 2002 due to the various scandals regarding the accounts of companies like Enron back then. Therefore that the bill contains itself eleven sections where most of them are refered specifically to the public's responsabilities that the board of directors of the public companies have. As well as the criminal penalties that they can face in the case of breaking the law.
Answer:
a. An effective internal control
c. Auditors must evaluate internal controls
Explanation:
SOX requires managers and auditors whose stock is publicly traded to have an effective internal control system, auditors must evaluate internal controls, violators may receive harsh penalties (not light penalties), and auditors’ work is overseen by Public Company Accounting Oversight Board (PCAOB) (not by the Public Accounting Board).
Suppose real GDP is forecasted to grow by 1.881.88 %, the velocity of money has been stable, and the Fed announces an inflation target of 2.502.50 %. What is the largest money growth rate the Fed could implement and still achieve its inflation target
Answer: 4.38%
Explanation:
Use the Quantity Theory of Money to find the growth rat:
MV = PY
ΔMoney supply + ΔVelocity = ΔPrice level + ΔEconomic output or GDP
Velocity is stable so is 0.
ΔMoney supply + 0 = 2.50% + 1.88%
ΔMoney supply = 4.38%
Assume a firm generates $2,500 in sales, has a $800 increase in accounts receivable and has a $500 increase in accounts payable during an accounting period. Based solely on this information, cash flow from operations will increase by:
Answer:
Cash flow from operations will increase by $2,200.
Explanation:
The amount of increase in cash flow from operations can be calculated as follows:
Increase in cash flow from operations = Sales - Increase in accounts receivable + Increase in accounts payable …………… (1)
Sales = $2,500
Increase in accounts receivable = $800
Increase in accounts payable = $500
Substituting the values into equation (1), we have:
Increase in cash flow from operations = $2,500 - $800 + $500 = $2,200
Therefore, cash flow from operations will increase by $2,200.
Newton Corporation was organized on January 1, 20X7. On that date, it issued 200,000 shares of its $10 par value common stock at $15 per share (400,000 shares were authorized). During the period January 1, 20X7, through December 31, 20X9, Newton reported net income of $750,000 and paid cash dividends of $380,000. On January 5, 20X9, Newton purchased 12,000 shares of its common stock at $12 per share. On December 31, 20X9, 8,000 treasury shares were sold at $8 per share. Newton used the cost method of accounting for treasury shares. What is the total stockholders' equity of Newton as of December 31, 20X9
Answer:
$3,290,000
Explanation:
Calculation to determine total stockholders' equity of Newton as of December 31, 20X9
200,000 shares issued for $15$3,000,000
(200,000 shares* $15)
Add Net income $750,000
Less Dividends ($380,000)
Less Purchased 12,000 treasury shares at $12 ($144,000)
(12,000 treasury shares*$12)
Add Decrease in treasury stock account $96,000
(8,000 shares *$12)
Less Decrease in additional paid-in capital ($32,000)
[(8,000 shares *$12)-(8,000 shares *$8])
Total Stockholders’ equity $3,290,000
Therefore total stockholders' equity of Newton as of December 31, 20X9 is $3,290,000
Gross Private Domestic Investment $1,593
Personal Taxes 1,113
Transfer Payments 1,683
Taxes on Production and Imports 695
Corporate Income Taxes 218
Personal Consumption Expenditures 7,304
Consumption of Fixed Capital 1,393
US Exports 1,059
Dividends 434
Government Purchases 1,973
Net Foreign Factor Income 10
Undistributed Corporate Profits 141
Social Security Contributions 748
US Imports 1,483
Statistical Discrepancy 50
Refer to the accompanying national income data (in billions of dollars). Corporate profits are equal to
Multiple Choice
$793.
$702.
$575.
$444.
Answer: $793 billion
Explanation:
Following the information provided in the question, the corporate profit will be calculated as:
Undistributed corporate profits = 141
Add: Dividend = 434
Add: Corporate income taxes = 218
Corporate profit = $793
Therefore, the corporate profit is $793 billion
Scott Lockhart owns and operates AAA Delivery Services. On January 1, 20Y7, Common Stock had a balance of $40,000 and Retained Earnings of $815,500. During the year, no additional common stock was issued, and $10,000 of dividends were paid. For the year ended December 31, 20Y7, AAA Delivery reported a net income of $67,250. Prepare a statement of stockholders' equity for the year ended December 31, 20Y7.
Answer and Explanation:
The preparation of the statement of stockholder equity should be presented below:
Statement of stockholders' equity
For the year ended December 31, 20Y7
Particulars Common Stock Retained Earnings Total
Beginning balance,
January 1 40000 815500 855500
Add: Net income 0 67250 67250
Less: Dividends paid 0 -10000 -10000
Ending balance,
December 31 40000 872750 912750
The stockholders' equity balance for the year ended December 31, 20Y7 is $912,750
What is stockholders' equity?Shareholders' equity is what shows the investment status of a business over a period of time.
Statement of stockholders' equity for the year ended December 31, 20Y7
Particulars Common Stock Retained Earnings Total
Beginning balance,
January 1 40,000 815,500 855,500
Add: Net income 0 67,250 67,250
Less: Dividends paid 0 -10,000 -10,000
Ending balance
December 31 40,000 872,750 912,750
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The following items may appear on a bank statement: 1. NSF check 2. EFT Deposit 3. Service charge 4. Bank correction of an error from recording a $300 deposit as $30. Indicate whether the item would appear as debit or credit memo on the bank statement and whether the item would increase or
Answer:
1. NSF check
- Appears on the Bank Statement as: Debit Memo
- Decreases the Balance of the Company's Bank Account
2. EFT Deposit
- Appears on the Bank Statement as: Crediit Memo
- Increases the Balance of the Company's Bank Account
3. Service charge
- Appears on the Bank Statement as: Debit Memo
- Decreases the Balance of the Company's Bank Account
4. Bank correction of an error from recording a $300 deposit as $30
- Appears on the Bank Statement as: Debit Memo
- Increases the Balance of the Company's Bank Account
Terry estimates that the costs of insurance, license, and depreciation to operate his car total $460 per month and that the gas, oil, and maintenance costs are 34 cents per mile. Terry also estimates that, on average, he drives his car 2,000 miles per month. Required: a. How much cost would Terry expect to incur during July if he drove the car 1,534 miles
Answer:
Total cost= $984.62
Explanation:
Giving the following information:
Fixed cost= $460
Unitary variable cost= $0.34 per mile
Miles driven= 1,534
First, we need to establish the total cost formula:
Total cost= fixed cost + unitary variable cost*number of units
Total cost= 460 + 0.34*x
x= number of miles
Now, the total cost for the month:
Total cost= 460 + 0.34*1,543
Total cost= $984.62
The Anti-Trust Department also monitors cartels within the United States. As long as they don't control more than 40 percent of the market, then the Anti-Trust Department will leave them alone.
a. Investigating cartels is a responsibility of the Federal Reserve Bank.
b. This is a true statement.
c. This statement is false.
d. The US. Anti-Trust Department does not investigate cartels in America
Answer:
c. This statement is false.
Explanation:
Anti-Trust Department is the department in the united states that could enforced the anti-trusted law. They have the right to investigate onto the collusion, this could harm the competition that could lead the welfare loss
Since large share could be considered so it should be controlled and investigated
Therefore the given statement is false
For the remaining questions, please consider the following transactions that happened upon the incorporation of Berry Company by its owner, John Berry, during the first week of January:
· It received €50,000 in cash from John Berry as capital.
· It borrowed €30,000 from a local bank.
· It purchased €15,000 of equipment for cash.
· It purchased €20,000 of inventory on account.
· It pre-paid €3,000 for the office rent and €2,000 for the insurance.
What is the total current assets at the end of the week?
Answer: €100,000
Explanation:
Cash received is an assetThe money borrowed is also cash so assets increaseEquipment was exchanged for cash. Both of them are assets so there is NO EFFECT on assets here. Inventory purchased on account will increase assets because assets were acquired with liabilities in this instance. Prepayments are assets but because this was paid with cash, there is NO EFFECT on assets as they cancel each other out.Total assets at the end of the week are:
= Cash + Cash borrowed + Inventory purchased on account
= 50,000 + 30,000 + 20,000
= €100,000
San Antonio Chair Inc. has direct labor cost standard of $14 per direct labor hour and an efficiency standard of 6 hours per chair. The actual results for the period when 30 chairs were built were 130 direct labor hours at an actual cost of $1,560. What is the direct labor cost variance
Answer:
Total direct labor variance= $960 favorable
Explanation:
Giving the following information:
We will separate the direct labor cost variance in rate and quantity variance. To calculate the direct labor rate and quantity variance, we need to use the following formulas:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
Direct labor time (efficiency) variance= (30*6 - 130)*14
Direct labor time (efficiency) variance= $700 favorable
Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity
Direct labor rate variance= (14 - 12)*130
Direct labor rate variance= $260 favorable
Actual rate= 1,560/130= $12
Total direct labor variance= 700 + 260
Total direct labor variance= $960 favorable
A company's managers should almost always give serious consideration to making significant adjustments in its camera/drone strategies and competitive approaches when:
a. all or most of its competitors are using mostly different competitive approaches and therefore the marketplace is not big enough to accommodate all of the competitors.
b. all or most of its competitors are using mostly copycat competitive approaches that make it difficult for any of these companies to capture sales volumes and revenues big enough to earn profits large enough to meet investor-expected EPS, ROE, and stock price appreciation targets.
c. the number of camera and drone workstations the company has installed is NOT well above the industry-averages (as reported on pages 6 and 7 of the most recent Camera & Drone Journal).
d. the company's market share for action cameras has not been the largest for two straight years and when its EPS and ROE have also not been the highest in the industry for two straight years.
e. the company's operating profits per action camera sold are not substantially above the industry-average benchmarks in at least three geographic regions (as reported on p. 6 of the most recent Camera & Drone Journal),
Answer:
Hence the correct option is option b - All are most of its competitors are using mostly copycat competitive approaches that make it difficult for any of these companies to capture sales volumes and revenues big enough to earn profits large enough to meet investor expected EPS, ROE, and stock price appreciation targets.
Explanation:
A company's management should nearly always give serious consideration to creating significant adjustments in its camera or drawn strategies and competitive approaches when all or most of its competitors are using mostly copycat competitive approaches that make it difficult for any of those companies to capture sales volumes and revenues large enough to earn profits large enough to satisfy investor expected EPS ROE and stock price appreciation targets.
The correct option for the given question is "all or most of its competitors are using mostly copycat competitive approaches that make it difficult for any of these companies to capture sales volumes and revenues big enough to earn profits large enough to meet investor-expected EPS, ROE, and stock price appreciation targets."
What is camera/drone strategies?The camera/drone strategy involves the strategic approach of a company in which the company overlooks its competitors, their market, and strategies and modify its strategies accordingly.
If the competitors are using copycat competitive approaches and hence are making it difficult for the company to achieve sales volume and revenue and the expectations of the companies' investors regarding the EPS, ROE and stock price appreciation are difficult to meet, the company should consider its camera/drone strategies and competitive approaches.
Therefore the correct option is b.
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Identify the situation below that will result in a favorable variance.
a. Actual costs are higher than budgeted costs.
b. Actual income is lower than expected income.
c. Actual expenses are higher than budgeted expenses.
d. Actual revenue is higher than budgeted revenue.
e. Actual revenue is lower than budgeted revenue.
Answer:
d. Actual revenue is higher than budgeted revenue.
Explanation:
When the Actual income/revenue/benefit is higher than the budgeted/estimated income/revenue/benefit, the variance will be favorable.
When the Actual income/revenue/benefit is lower than the budgeted/estimated income/revenue/benefit, the variance will be unfavorable.
When the Actual expense/cost/loss is higher than the budgeted/estimated expense/cost/loss, the variance will be unfavorable.
When the Actual expense/cost/loss is lower than the budgeted/estimated expense/cost/loss, the variance will be favorable.
a.
As the actual cost incurred is higher than the cost estimated, then the variance in both costs is unfavorable.
b.
As the actual Income earned is lower than the income estimated, then the variance in both incomes is unfavorable.
c.
As the actual expense incurred is higher than the expense estimated, then the variance in both expenses is unfavorable.
d.
As the actual revenue incurred is higher than the revenue estimated, then the variance in both revenues is favorable.
e.
As the actual revenue earned is lower than the revenue estimated, then the variance in both revenues is unfavorable.
Item2 1 points Time Remaining 59 minutes 39 seconds00:59:39 Item 2 Time Remaining 59 minutes 39 seconds00:59:39 Crimson Inc. recorded credit sales of $755,000, of which $500,000 is not yet due, $180,000 is past due for up to 180 days, and $75,000 is past due for more than 180 days. Under the aging of receivables method, Crimson Inc. expects it will not collect 5% of the amount not yet due, 19% of the amount past due for up to 180 days, and 28% of the amount past due for more than 180 days. The allowance account had a debit balance of $2,800 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account
Answer:
$83,000
Explanation:
The computation of the ending balance of the allowance account is given below:
Given that
Accounts receivable not yet due be $500,000
So, the bad debt for the same should be
= 5% of $500,000
= $25,000
Accounts receivable due for upto 180 days be $180,000
So, the bad debts for the same should be
= 19% of $180,000
= $34,200
Accounts recievable due for more than 180 days be $75,000
So, the bad debts for the same should be
= 28% of $75,000
= $21,000
Now
Ending balance of Allowance aoount is
= $2,800 + $25,000 + $34,200 + $21,000
= $83,000
Cary Inc. reported net credit sales of $300,000 for the current year. The unadjusted credit balance in its Allowance for Doubtful Accounts is $500. The company has experienced bad debt losses of 1% of credit sales in prior periods. Using the percentage of credit sales method, what amount should the company record as an estimate of Bad Debt Expense?
a) $2,500
b) $3,000
c) $2,980
d) $3,200
Answer: b. $3,000
Explanation:
The company's bad debt for the current year is said to be 1% of the credit sales because this is the usual rate for the past periods.
The bad debt expense for this year is therefore:
= Bad debt percentage * Credit sales
= 1% * 300,000
= $3,000
This will then be posted to the Allowance for Doubtful Accounts.
Grapefruit, Inc. provides the following information for 20X8: Net income $39,000 Market price per share of common stock $20/share Dividends paid $0.75/share Common stock outstanding at Jan. 1, 2018 110,000 shares Common stock outstanding at Dec. 31, 2018 155,000 shares The company has no preferred stock outstanding. Calculate the dividend yield for common stock.
Answer: 3.75%
Explanation:
Dividend yield = Annual dividend / Common stock market price
Annual dividend = 0.75 per share
Common stock market price = $20 per share
Dividend yield = 0.75 / 20
= 3.75%
reparation of Stockholders’ Equity Section Wildcat Drilling has the following accounts on its trial balance. Debit Credit Retained Earnings 600,000 Cash 825,000 Additional Paid-In Capital—Common 3,100,000 Additional Paid-In Capital—Preferred 400,000 Accounts Payable 345,000 Accounts Receivable 410,000 Common Stock, $1 par 600,000 Preferred Stock, $10 par 340,000 Inventory 1,300,000 Treasury Stock—Common (30,000 shares) 382,000 Accumulated Other Comprehensive Income 70,000 Required: Prepare the stockholders’ equity portion of Wildcat’s balance sheet.
Answer:
Wildcat Drilling
Stockholders' Equity Section:
Common Stock, $1 par 600,000
Preferred Stock, $10 par 340,000
Additional Paid-In Capital—Common 3,100,000
Additional Paid-In Capital—Preferred 400,000
Treasury Stock—
Common (30,000 shares) (382,000)
Retained Earnings 600,000
Accumulated Other Comprehensive Income 70,000
Explanation:
a) Data and Calculations:
Wildcat Drilling Trial Balance Accounts:
Debit Credit
Cash 825,000
Accounts Receivable 410,000
Inventory 1,300,000
Accounts Payable 345,000
Common Stock, $1 par 600,000
Preferred Stock, $10 par 340,000
Additional Paid-In Capital—Common 3,100,000
Additional Paid-In Capital—Preferred 400,000
Treasury Stock—
Common (30,000 shares) 382,000
Retained Earnings 600,000
Accumulated Other Comprehensive Income 70,000
__________ is a risk-based strategic assessment and planning technique used primarily for security but which also can be used for disaster recovery planning purposes.
Answer: Octave risk assessment
Explanation:
Operationally Critical Threat, Asset, and Vulnerability Evaluation (OCTAVE) risk assessment is is simply a self-directed approach whereby the employees in an organization take responsibility and set up the security strategy of the organization.
It's a risk-based strategic assessment and planning technique used primarily for security but which also can be used for disaster recovery planning purposes. In this case, with the knowledge of the employees, the team defines the state of security in the organization, identify the risks and then sets a security strategy.
A firm operated at 80% of capacity for the past year, during which fixed costs were $198,000, variable costs were 66% of sales, and sales were $1,082,000. Operating profit was a.$367,880 b.$714,120 c.$169,880 d.$135,904
Answer: $169,880
Explanation:
Operating profit for a company is simply its sales less its fixed costs and variable costs:
Operating profit = Sales revenue - Variable costs - Fixed costs
Variable costs:
= 66% * 1,082,000
= $714,120
Operating profit:
= 1,082,000 - 714,120 - 198,000
= $169,880
Why does the government sometimes use an expansionary fiscal policy?
The following data relate to direct labor costs for August: actual costs for 5,500 hours at $24.00 per hour and standard costs for 5,000 hours at $23.70 per hour. The direct labor rate variance is a.$1,500 unfavorable b.$1,500 favorable c.$1,650 unfavorable d.$1,650 favorable
Answer: c. $1,650 unfavorable
Explanation:
The direct labor rate variance shows the difference between the cost of direct labor that the company thought it would incur vs what it actually incurs for the period.
Formula is:
Direct labor rate variance = Actual cost of direct labor - Standard cost of actual hours of direct labor
= Actual hours * (Actual cost - Standard cost)
= 5,500 * (24 - 23.70)
= $1,650 unfavorable
Unfavorable because the actual cost incurred was more than the cost anticipated.
Corris Co. accumulates the following data concerning a mixed cost, using miles as the activity level. Miles Driven Total Cost January 10,000 $17,000 February 8,000 13,500 March 9,000 14,400 April 7,000 12,500 Compute the variable and fixed cost elements using the high-low method. (Round variable cost to 2 decimal places, e.g. 15.25.)
Variable cost $ ______ per mile
Fixed cost $ ______
Answer:
Variable cost per unit= $1.5
Fixed costs= $2,000
Explanation:
Giving the following information:
Miles Driven Total Cost
January 10,000 $17,000
February 8,000 13,500
March 9,000 14,400
April 7,000 12,500
To calculate the variable and fixed costs under the high-low method, we need to use the following formula:
Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)
Variable cost per unit= (17,000 - 12,500) / (10,000 - 7,000)
Variable cost per unit= $1.5
Fixed costs= Highest activity cost - (Variable cost per unit * HAU)
Fixed costs= 17,000 - (1.5*10,000)
Fixed costs= $2,000
Fixed costs= LAC - (Variable cost per unit* LAU)
Fixed costs= 12,500 - (1.5*7,000)
Fixed costs= $2,000
When the value of a currency A reduces as a result of an increase in the value of another currency B, then currency A would be said to have Select one O a, Arranged b. Depreciated OC Devalued O d. Denominated
the answer is not here the answer is deficit but I will pick depreciated
A differentiation strategy allows a company to charge a(n) __________ price for its product, if it chooses to do so. a. premium b. exorbitant c. low d. average e. escalating
Answer:
A
Explanation:
A differentiation strategy entails making ones product different from that of other firms in the industry. This would enable the firm that has a differentiated product sell at a premium. The aim of this strategy is to have a competitive advantage
Advantages of a differentiation strategy
products are unique. This reduces the competition the product faces with other products in the industry it increases brand loyaltyThe Diamond Outlet has current earnings per share of $1.96 and an expected earnings growth rate of 2.2 percent. The required return on the stock is 13 percent and the current book value per share is $12.70. What is the current market value of this stock
Answer:
the current market value of this stock is $15.96
Explanation:
given
current earnings = $1.96 per share
growth rate = 2.2 percent
return on the stock = 13 percent
current book value = $12.70 per share
solution
first we get here return on equity that is
return on equity = [ current earning per share × ( 1 + growth ) ] ÷ book value per share ....................1
return on equity = [tex]\frac{1.96 + (1+0.022)}{12.70}[/tex]
return on equity =15.77 %
and
now we get here payout ration that is
growth rate = retention ration × ROE ....................2
put here value
2.2% = (1 - payout ratio ) × 15.77
payout ratio = 86.05 %
and
now we get here current dividend per share that is
current dividend per share = current earning per share × payout ratio ...........3
put here value
current dividend per share = 1.96 × 86.05 %
current dividend per share = $1.6865
and
now we get here current market value
current market value = [ current dividend per share × ( 1 + growth ) ] ÷ [ required return - growth rate] ....................1
current market value = [Text]\frac{1.6865 \times (1+0.022)}{0.13-0.022}[text]
current market value = [tex]\frac{1.6865 \times (1+0.022)}{0.13-0.022}[/tex]
current market value = $15.96
The following information is available for a company's utility cost the estimated variable cost per machine hour is:_____.
Month Machine hours Utility cost
January 950 $5,500
February 1,850 $7,000
March 2,500 $8,100
April 650 $3,420
Answer:
Variable cost per unit= $2.53
Explanation:
Giving the following information:
Month Machine hours Utility cost
January 950 $5,500
February 1,850 $7,000
March 2,500 $8,100
April 650 $3,420
To calculate the unitary cost per machine hour, we need to use the high-low method:
Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)
Variable cost per unit= (8,100 - 3,420) / (2,500 - 650)
Variable cost per unit= $2.53
the financial statements for banana company include the following items: 20x9 20x8 cash $51,500 $50,000 short-term investments 25,000 15,000 net accounts receivable 53,000 50,000 merchandise inventory 163,000 50,000 total assets 532,000 554,000 accounts payable 131,500 124,000 salaries payable 25,000 13,000 long-term note payable 59,000 53,000 compute the current ratio for 20x8. group of answer choices
Answer:
1000,$5000maaf kalo salah
An important sustainability issue that has received much more scrutiny in recent years is the: focus on adequate inventory levels. reduction in packaging waste by using alternate materials. effort to move warehouse storage closer to consumers. emphasis on materials handling and warehouse design. none of the above
Answer:
reduction in packaging waste by using alternate materials.
Explanation:
An important sustainability issue that has received much more scrutiny in recent years is the reduction in packaging waste through the use of alternative materials. You can see this happening through new laws that prohibit the use of plastic bags in supermarkets and plastic drinking straws, for example.
There are several companies that seek the use of biodegradable packaging, even if these are not provided for by law. Companies seek to adopt sustainable actions in their processes to demonstrate to their stakeholders that they follow ideal standards of environmental preservation and social awareness. This is a positive type of marketing for companies, as the population is more aware and wants to consume more from environmentally responsible companies.These companies then become more valued by their consumers and consequently more competitive and well positioned in the market
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next 3 years, with the growth rate falling off to a constant 7 percent thereafter. If the required return is 14 percent and the company just paid a $1.90 dividend. what is the current share price
Answer:
$46.20
Explanation:
Dividend in year 1 = 1.90 x 1.26 = 2.39
Dividend in year 2 = 1.90 x 1.26² = 3.02
Dividend in year 3 = 1.90 x 1.26³ = 3.80
Dividend in year 3 = (3.80 x 1.07) / (0.14 - 0.07) = 58.10
Calculate the present value of these dividends
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
Cash flow in year 1 = 2.39
Cash flow in year 1 = 3.02
Cash flow in year 1 = 3.80 + 58.10
I = 14
PV = $46.20
To determine PV using a financial calculator take the following steps:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
