Your company had net income of $125,000 for the year just ended. Dividends of $77,750 were...

Your company had net income of $125,000 for the year just ended. Dividends of $77,750 were paid on the company's beginning equity of $1,375,000. If the company has 96,000 common shares outstanding with a current market price of $11.75 per share, what is the required rate of return on the shares assuming a constant sustainable growth rate of dividends?
options: 10.04%
10.30%
10.57%
10.83%
11.09%
Previous PageNext Page

Expert Solution

Beginning equity	$ 1,375,000
Net income	$ 125,000
Earning rate	125000/1375000
Earning rate	9.09%

Net income	$ 125,000
Dividend	$ 77,750
Retention ratio=	(125000-77750)/125000
Retention ratio=	37.80%

Growth rate=	Retention * Earning
Growth rate=	3.44%

Dividend per share	77750/96000
Dividend per share	$ 0.81

Share price	$ 11.75

Share price=	Next dividend/(Cost - Growth)
11.75=	0.81*(1+3.44%)/(Cost - 3.44%)
(Cost - 3.44%)=	0.81*(1+3.44%)/11.75
(Cost - 3.44%)=	7.13%
Cost=	10.57%

jeff jeffy answered 1 year ago

Ringmeup had a net income of 165200 for the year ended Dec31,2016At the beginning of the...

Ringmeup had a net income of 165200 for the year ended Dec31,2016At the beginning of the year 37000 sharesof common stockwere outstanding. On May1 an additional 15000 shares were issued. On Dec2. the Comp purchased 4900 shares of its own common stock and held them as treasury stock until the end of the year. During the year Ringmeup paid annual divedend of 8000 shares of 3.80% 100 per value preferred stock that were outstanding the entire year. Calculate basic earning...

The XYZ Corporation had a net profit of $120,000 in the fiscal year just ended

The XYZ Corporation had a net profit of $120,000 in the fiscal year just ended. The capital stock consists of 8,000 shares of 8% convertible preferred stock with a par value of $50 per share and 20,000 shares of no-par common stock. If the board of directors declared a dividend of the entire earnings, what amount would be paid to preferred and common shareholders?

For the just completed year, Hanna Company had net income of $38,000. Balances in the company’s...

For the just completed year, Hanna Company had net income of $38,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: December 31 End of Year Beginning of Year Current assets: Cash and cash equivalents $ 55,000 $ 83,000 Accounts receivable $ 156,000 $ 190,000 Inventory $ 436,000 $ 367,000 Prepaid expenses $ 11,500 $ 14,000 Current liabilities: Accounts payable $ 364,000 $ 384,000 Accrued liabilities $ 8,500...

For the just completed year, Hanna Company had net income of $79,000. Balances in the company’s...

For the just completed year, Hanna Company had net income of $79,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: December 31 End of Year Beginning of Year Current assets: Cash and cash equivalents $ 56,000 $ 80,000 Accounts receivable $ 160,000 $ 190,000 Inventory $ 442,000 $ 346,000 Prepaid expenses $ 11,000 $ 13,500 Current liabilities: Accounts payable $ 358,000 $ 382,000 Accrued liabilities $ 9,000...

For the just completed year, Hanna Company had net income of $101,000. Balances in the company’s...

For the just completed year, Hanna Company had net income of $101,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: December 31 End of Year Beginning of Year Current assets: Cash and cash equivalents $ 57,000 $ 81,000 Accounts receivable $ 164,000 $ 192,000 Inventory $ 451,000 $ 349,000 Prepaid expenses $ 12,500 $ 13,500 Current liabilities: Accounts payable $ 350,000 $ 384,000 Accrued liabilities $ 8,500...

For the just completed year, Hanna Company had net income of $161,000. Balances in the company’s...

For the just completed year, Hanna Company had net income of $161,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: December 31 End of Year Beginning of Year Current assets: Cash and cash equivalents $ 62,000 $ 75,000 Accounts receivable $ 162,000 $ 186,000 Inventory $ 426,000 $ 352,000 Prepaid expenses $ 12,300 $ 14,000 Current liabilities: Accounts payable $ 358,000 $ 388,000 Accrued liabilities $ 8,400...

For the just completed year, Strident Company had net income of $71,000. Balances in the company’s...

For the just completed year, Strident Company had net income of $71,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: December 31 End of Year Beginning of Year Current assets: Cash $ 63,000 $ 80,000 Accounts receivable $ 158,000 $ 182,000 Inventory $ 430,000 $ 355,000 Prepaid expenses $ 12,000 $ 13,000 Current liabilities: Accounts payable $ 358,000 $ 390,000 Accrued liabilities $ 8,000 $ 12,500 Income...

For the just completed year, Hanna Company had net income of $134,000. Balances in the company’s...

For the just completed year, Hanna Company had net income of $134,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: December 31 End of Year Beginning of Year Current assets: Cash and cash equivalents $ 61,000 $ 83,000 Accounts receivable $ 166,000 $ 196,000 Inventory $ 435,000 $ 367,000 Prepaid expenses $ 11,500 $ 13,800 Current liabilities: Accounts payable $ 356,000 $ 392,000 Accrued liabilities $ 8,000...

Ringmeup Inc. had net income of $112,800 for the year ended December 31, 2019. At the...

Ringmeup Inc. had net income of $112,800 for the year ended December 31, 2019. At the beginning of the year, 36,000 shares of common stock were outstanding. On May 1, an additional 14,000 shares were issued. On December 1, the company purchased 4,800 shares of its own common stock and held them as treasury stock until the end of the year. No other changes in common shares outstanding occurred during the year. During the year, Ringmeup paid the annual dividend...

Ringmeup Inc. had net income of $102,700 for the year ended December 31, 2019. At the...

Ringmeup Inc. had net income of $102,700 for the year ended December 31, 2019. At the beginning of the year, 36,000 shares of common stock were outstanding. On May 1, an additional 12,000 shares were issued. On December 1, the company purchased 4,500 shares of its own common stock and held them as treasury stock until the end of the year. No other changes in common shares outstanding occurred during the year. During the year, Ringmeup paid the annual dividend...

Question