Answer:
Working capital = $ 374,000
Explanation:
Calculation to Determine the company’s working capital at December 31, 2021
Formula for Working Capital
Working capital = Current assets - Current liabilities
First is to find the Current assets
Current assets =Cash $40,000 + Accounts receivable 170,000 +Raw materials 44,000+Work in process 62,000 +Finished goods 109,000 +Notes receivable 120,000 +Interest receivable 23,000 +Investment in debt securities 52,000+Prepaid rent 40,000 (80,000/2)
Current assets=$660,000
Second step is to find the Current liabilities
Current liabilities =Interest payable $25,000+Accounts payable 200,000+Deferred revenue 28,000 (56,000/2) +Allowance for uncollectible accounts 33,000
Current liabilities =$286,000
Let plug in the formula
Working capital =$660,000 - $286,000
Working capital = $ 374,000
Therefore the company’s working capital at December 31, 2021 will be $374,000
If a bank has required reserves of $27,000,000, excess reserves of $41,000,000, and deposits of $90,000,000 with a required reserve ratio of 30 percent, how much can the bank lend out?
Answer:
$41,000,000
Explanation:
Excess reserves can be described as the amount of money that is kept by a bank. This amount of money can be given out to individuals or different organisations in the form of a loan, this is done to generate more profits as a certain amount of interest is being added to the amount of cash that will be given out.
In the scenario described above, the bank has an excess reserve of $41,000,000. Therefore, the bank will be willing to lend out $41,000,000 as loan.
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $620,000 cost with an expected four-year life and a $34,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round PV factor value to 4 decimal places.) Expected annual sales of new product $ 2,190,000 Expected annual costs of new product Direct materials 494,000 Direct labor 686,000 Overhead (excluding straight-line depreciation on new machine) 476,000 Selling and administrative expenses 174,000 Income taxes 30 % Required: 1. Compute straight-line depreciation for each year of this new machine’s life. 2. Determine expected net income and net cash flow for each year of this machine’s life. 3. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year. 4. Compute this machine’s accounting rate of return, assuming that income is earned evenly throughout each year. 5. Compute the net present value for this machine using a discount rate of 4% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the asset’s life.)
Answer:
1) depreciation expense per year = $146,500
2) net income:
years 1 - 4 = $149,450
net cash flows:
year 0 = -$620,000
year 1 = $295,950
year 2 = $295,950
year 3 = $295,950
year 4 = $329,950
3) payback period = 2.09 years
4) accounting rate of return = 24.1%
5) net present value (NPV) = $483,330.83
Explanation:
purchase cost of the machine $620,000
depreciation expense per year = ($620,000 - $34,000) / 4 = $146,500
expected annual sales $2,190,000
direct materials $494,000
direct labor $686,000
overhead (excluding depreciation) $476,000
S&A expenses $174,000
total costs (excluding depreciation) = $1,830,000
income taxes 30%
net income per year = ($2,190,000 - $1,830,000 - $146,500) x 70% = $149,450
net cash flow (years 1 - 3) = $149,450 + $146,500 = $295,950
net cash flow (year 4) = $149,450 + $146,500 + $34,000 = $329,950
payback period = $620,000 / $295,950 = 2.09 years
accounting rate of return = $149,450 / $620,000 = 24.1%
NPV, using a financial calculator = $483,330.83
The difference between total sales revenue and total cost of goods sold is the: A. Trade margin B. Gross marketing contribution C. Net marketing contribution D. All of the above
Answer:
A. Trade margin
Explanation:
The profit obtained from trading operations is known as gross profit or trade margin.This is calculated as sales less costs of goods sold.
The difference between total sales revenue and total cost of goods sold is the gross marketing contribution.
The following information is considered:
When the cost of goods sold is deducted from the sales revenue so the gross marketing contribution should come. Neither it is trade margin, nor net marketing contribution.In other words, the difference is called as gross margin.Therefore we can conclude that the correct option is B.
Learn more: brainly.com/question/16115373
Mayan Company had net income of $37,380. The weighted-average common shares outstanding were 8,900. The company's earnings per share is: Multiple Choice $7.48. $5.36.
Answer:
$4.20.
Hie, the question you have provided is not complete, as it is missing all choices of options.
However important information to answer the question is provided below :
Earnings per share = Earnings Attributable to Holders of Common Shares ÷ Weighted Average Number of Common Shares
= $37,380 ÷ 8,900
= $4.20
Conclusion :
The company's earnings per share is: $4.20
The carrying value of Blossom’s net identifiable assets, including the goodwill, at year-end is $855,000. Prepare Cullumber’s journal entry, if necessary, to record impairment of goodwill.
Answer:
Goodwill Impairment (Debit)
Goodwill (Credit)
Explanation:
In case goodwill is impaired, then the entry to record this impairment will be Goodwill Impairment Debit and Goodwill Credit.
By crediting the Goodwill, the account will be reduced. This shows that the business is currently worth less than is accounted for. The Goodwill account is reduced to identify this difference.
The Impairment loss is an expense and must be reflected in the income statement. Therefore, while we reduce Goodwill amount from balance sheet. We record the expense on the income statement, which would mean that the current year profit amount will be reduced.
Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by:
Answer:
Investors are risk averse, which means that they are willing to invest in low risk projects or investments. In order for an investor to invest in a riskier project, he/she will expect to receive higher returns to compensate for the extra risk. US Treasury bonds are probably the safest investments in the world, that is why they yield the lowest interest rate. AAA bonds are less risky than BBB bonds, which in turn are less risky than CCC bonds. That is why AAA bonds yield a lower return than BBB bonds, and BBB bonds yield a lower return than CCC bonds.
Which of the following is a true statement about the limitation on business interest deductions? This limitation is not imposed on businesses with average annual gross receipts of $25 million of less for the prior three taxable years. A. Interest disallowed by this limitation is carried back three years and then forward five years B. The limitation is calculated as a percentage of the taxpayers total taxable income C. This limitation is not imposed on businesses with average annual gross receipts of $26 million or less for the prior three taxable years D. All of the choices are false E. All of the choices are true
Answer:
Limitation on Business Interest Deductions:
B. The limitation is calculated as a percentage of the taxpayers total taxable income
Explanation:
30% (or 50% for years 2019 and 2020, as amended by the CARES Act) of the adjusted taxable income of a business is the limit of business interest expense that is allowed by the IRS. The excess after this limitation may be carried forward by the tax paying organization to future tax years indefinitely until the interest expense is completely applied.
Following the CARES Act, "the business interest expense deduction limitation does not apply to certain small businesses whose gross receipts are $26 million or less, electing real property trades or businesses, electing farming businesses, and certain regulated public utilities. The $26 million gross receipts threshold, which applies for the 2020 tax year, is adjusted annually for inflation."
Salud Company reports the following information. Use the indirect method to prepare only the operating activities section of its statement of cash flows for the year ended December 31, 2017. (Amounts to be deducted should be indicated with a minus sign.)
Selected 2017 Income Statement Data Selected Year-End 2017
Net income $455,000 Accounts receivable increase $52,800
Depreciation expense 95,500 Prepaid expenses decrease 17,400
Gain on sale of machinery 26,300 Accounts payable increase 6,200
Wages payable decrease 2,100
Answer:
Cash flow from Operating Activities
Net income $455,000
Adjustments for non-cash items :
Depreciation expense $95,500
Gain on sale of machinery ($26,300)
Adjustment for Changes in Working Capital :
Increase in Accounts receivable ($52,800)
Decrease in Prepaid expenses $17,400
Increase in Accounts payable $6,200
Decrease in Wages payable $2,100
Net Cash from Operating Activities $497,100
Explanation:
The Indirect method adjusts the Profit before tax with the following items :
Non-cash items previously added or deducted from net incomeChanges in Working Capital"The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is:"
Answer:
The answer is historical cost principle
Explanation:
Historical cost principle is a principle in which the asset and the liability are being reported at the actual money in which they were purchased. This actual amount in which they were purchased is their historical cost.
For example, a company bought a machinery five years ago for $2million and the expected life of the machinery is five years. After there years, the machine has a carrying amount of $1.2 million on the balance sheet. The historical cost of this asset is $2million.
Michelle gives out a business card with an e-mail address on it. According to the comments that accompany the UETA, it may be reasonable to infer that Michelle has consented to
Answer:
Explanation:
transact business electronically.
ABC paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. ABC would report cash outflows from activities, as follows:
A) Operating, $12,000; Financing $6,000.
B) Operating, $0; Financing $18,000.
C) Operating, $18,000; Financing $0.
D) Operating, $2,000; Financing $16,000.
Answer: A) Operating, $12,000; Financing $6,000.
Explanation:
Operating Activities deal with the cashflow related to the operations of the business and it's short term obligations. Interest payments on loans are short term and are considered part of normal business operations so the outflow from Operating activities is;
= $2,000 interest on short-term notes payable + $10,000 interest on long-term bonds
= $12,000
Financing Activities relate to cash-flow surrounding the capital of the firm. This includes Equity and long term debt. Dividends have the impact of reducing equity and so will fall under Financing activities.
Dividends = Financing = $6,000
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $71,000 and $2,900, respectively. During the year Kincaid reported $190,000 of credit sales. Kincaid wrote off $1,750 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $227,700. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.
The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to:
a) $29,650.
b) $28,500.
c) $33,300.
d) $31,550.
Answer:
b) $28,500.
Explanation:
The computation of the net realizable value of receivables is shown below:
As we know that
Net realizable value = Gross account receivable - allowance for doubtful debts
where,
Gross account receivable is
= Beginning balance of the account receivable + credit sales - written off amount - collections
= $71,000 + $190,000 - $1,750 - $227,700
= $31,550
And, the allowance for doubtful debts is
= Beginning balance of allowance for doubtful debts - written off + allowance needed
= $2,900 - $1,750 + $190,000 × 1%
= $3,050
So, the net realizable value is
= $31,550 - $3,050
= $28,500
hence, the correct option is b. $28,500
Because of the legal protection for intellectual property, such as patents, a firm has a better chance of recouping the costs of research if it pursues:_________.
a. Basic technological research
b. Technologically innnovative research
c. Appllied technological research
d. Technologically positive research
Answer:
D. Technologically positive research
Explanation:
Technology positive research can be said to be a scientific method which explain elaborately on the approach that is seen to deal with research founded on the premise of the modern world is been defined by a set of regular laws or patters, and that we can investigate these laws. Generally, it is known that positivity brings open doors and also a level ground for normal discussions with even people that have spent barely few hours with a said person. This research method is also been seen as the type where theory is typically provided as a set of related variables express by some form of formal logic, proven empirically to be significant.
TB MC Qu. 5-49 Walbin Corporation uses the weighted-average method... Walbin Corporation uses the weighted-average method in its process costing system. The beginning work in process inventory in a particular department consisted of 20,500 units, 100% complete with respect to materials cost and 30% complete with respect to conversion costs. The total cost in the beginning work in process inventory was $26,200. A total of 58,000 units were transferred out of the department during the month. The costs per equivalent unit were computed to be $2.10 for materials and $3.80 for conversion costs. The total cost of the units completed and transferred out of the department was:
Answer:
The total cost of the units completed and transferred out of the department was: $342,200.
Explanation:
First calculate the Total Cost per Equivalent unit.
Total Cost per Equivalent unit :
Materials $2.10
Conversion $3.80
Total $5.90
Total cost of the units completed and transferred out = Units completed and transferred out × Total Cost per Equivalent unit
= 58,000 units × $5.90
= $342,200
If a firm pays labor $5 and receives a MPL of 10, while paying capital $100 and receiving a MPC of 100, to lower production costs it should hire more labor and less capital.
a. True
b. False
Answer:
True
Explanation:
Here, we want to evaluate the validity of the given statement whether true or false.
The correct answer is true.
For a firm that pays $5 labor and receives a MPL of 10, while paying capital of $100, and receiving a MPC of 100, to lower production costs, it should higher more labor and less capital.
Tameika Johnson’s supervisor is in charge of the arrangements for the annual company party. He has given Johnson the responsibility for finding a caterer for the event, arranging the entertainment, and selecting the door prizes. Johnson’s supervisor used _____ to make her accountable for most of the success or failure of the picnic.
Answer: delegation of authority
Explanation:
From the question, we are informed that Tameika Johnson’s supervisor is in charge of the arrangements for the annual company party and that he has given Johnson the responsibility for finding a caterer for the event, arranging the entertainment, and selecting the door prizes.
In this scenario, the outcome of the picnic has already been delegated to Johnson because the job role has been shared to him.
Kathy and Annise are a married couple who file jointly. In the current year, they have net ordinary income of $10,000 from a partnership interest in which they do not materially participate. They also have a net loss of $30,000 from a rent house in which they actively participate. Their adjusted gross income (AGI) exclusive of these investments is $120,000. What is their AGI after taking into account these investments
Answer:
$100,000
Explanation:
As Kathy and Annise are a married couple who file jointly, their revised AGI can be calculated by deducting a net loss from the adjusted gross income.
DATA
Current AGI = $120,000
Rental loss = $30,000
Partnership gain = $10,000
Revised AGI = Current AGI - Net loss
Revised AGI = 120,000 – 20,000(w)
Revised AGI = 100,000
Working
Net loss = Rental loss – partnership gain
Net loss = $30,000 - $10,000
Net loss = $20,000
NOTE: Kathy and Annise can deduct 20,000 loss against other income as they materially participate in rental activities.
Consider a project with a first cost (investment) of $250,000, an annual O&M cost of $50,000, annual revenue of $160,000, and a salvage value of $40,000 after a 10-year life. Find the annual worth of the project assuming an interest of 12% per year.
Answer:
$68,030
Explanation:
According to the given situation, the computation of annual worth is shown below:-
Annual worth = -250,000 (A/P, 12%, 10) - $50,000 + $160,000 + $40,000 (A/F, 12%, 10)
= -$250,000 × 0.1770 - $50,000 + $160,000 + $40,000 × 0.0570
= -$44,250 - $50,000 + $160,000 + $2,280
= $68,030
So, the right answer is $68,030
Under Armour uses its website to sell its products, but Nathan Shriver, art director of Interactive, believes that what the website does, and what advertising does not do, is make the brand
Answer:
This question is incomplete, the options are missing. The options are the following:
a) Friendlier to the customer
b) Recognizable in retail stores
c) Seem special compare to off-label gear
d) Part of the consumer's daily life
e) Seem of higher quality than Nike
And the correct answer is the option D: Part of the consumer's daily life.
Explanation:
To begin with, when Nathan Shriver says that he believes that the website and advertising of the company does is to make the brand more part of the consumer's daily life refers that in the end it is that action what truly makes the company to increase its sales due to the fact that thanks to the marketing campaigns now the brand is more important in the life of the consumers and more due to the fact that those advertising make them understand that the use of Under Armour's products is essential to every day training and movement that the clients might face.
TB MC Qu. 8-198 The Puyer Corporation makes ... The Puyer Corporation makes and sells only one product called a Deb. The company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available: Monthly Fixed Cost Variable Cost Per Deb Sold Sales commissions $ 1.02 Shipping $ 1.52 Advertising $ 51,200 $ 0.32 Executive salaries $ 61,200 Depreciation on office equipment $ 21,200 Other $ 41,200 All of these expenses (except depreciation) are paid in cash in the month they are incurred. If the company has budgeted to sell 16,200 Debs in February, then the total budgeted fixed selling and administrative expenses for February is:
Answer:
The Puyer Corporation
The total budgeted fixed selling and administrative expenses for February is:
$174,800
Explanation:
a) Data and Calculations:
Advertising $ 51,200
Executive salaries $ 61,200
Depreciation on office equipment $ 21,200
Other $ 41,200
Total fixed selling & admin. exp. $174,800
b) The Puyer Corporation's fixed selling and administrative expenses are always fixed in total but not per unit of Deb within the short-term because they do not depend on Deb's volume of production or sale. They are unlike the variable aspect of expenses that are fixed per unit of Deb but vary in total. Those expenses which do not vary with the level or volume of sales or production activity of Deb are regarded as fixed because the level or volume of sales or production activity of Deb does not change their totals. But, in the long-term, Puyer's fixed expenses will vary in total as well as per unit of Deb produced or sold.
The Absolute Zero Co. just issued a dividend of $2.70 per share on its common stock. The company is expected to maintain a constant 5.6 percent growth rate in its dividends indefinitely. If the stock sells for $54 a share, what is the company's cost of equity?
Answer:
10.88%
Explanation:
According to the given situation, the computation of the company's cost of equity is shown below:-
Stock price = (Current dividend × (1 + Growth rate)) ÷ (Cost of equity - Growth rate)
$54 = ($2.70 × (1 + 0.056)) ÷ (Cost of equity - 0.056)
Cost of equity = $2.8512 ÷ $54 + 0.056
= 10.88%
Therefore for computing the cost of equity we simply applied the above formula.
When U.S. goods become more expensive relative to foreign goods, exports will __________ and imports will __________.
Answer:
fall, rise
Explanation:
US goods will become less expensive
g A decrease in the basis will __________ a long hedge and __________ a short hedger. Group of answer choices hurt; hurt hurt; benefit benefit; have no effect upon benefit; benefit benefit; hurt
Answer:
1. hurt
2. benefit
Explanation:
Given that a contract and an asset are to be converted in cash early, this implies that, basis risk exists and futures price and spot price should not move in lockstep before delivery date. However, a reduction in the basis will then hurt the long hedger and benefit the short hedger.
Hence, considering the nature of the hypothetical situation, a decrease in the basis will HURT a long hedge and BENEFIT a short hedge.
Which of the following is a plausible explanation for the difference between the net change in fund balances of governmental funds (fund-level statement of revenues, expenditures, and changes in fund balances) and the change in net position of governmental activities (government-wide statement of activities)?
a. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
b. Amounts reported as expenditures in the statement of activities are reported as capital assets in the fund-level statements.
c. Debt proceeds provide current financial resources in the statement of activities, but are reported as long-term liabilities in the fund-level statements
d. Depreciation of general fixed assets is not reported as an expense in the statement of activities, but it is reported as an expense in the fund-level
Answer:
a. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
Explanation:
Governments maintain a statement of activities that are carried out, and fund-level statements are also maintained to track expenses of government.
When there is a disparity between the two, a plausible explanation will be that some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
For example some long term project that is carried out by the government may be treated by creating a budget. These expenses will not be recognized in the current expenses that make up fund-level expenses.
Kalanick’s attributes include focus and perseverance. These attributes are most closely related to which of the following?
a. high extroversion
b. low emotional stability
c. high agreeableness
d. high openess to experience
e. proactive personality
Answer: proactive personality
Explanation:
Proactive personality has to do with the individuals who identify opportunities, and also show perseverance and initiative and wait till there's a meaningful change regarding a particular situation.
Since Kalanick’s attributes include focus and perseverance. The attributes are most closely related to proactive personality.
Longman Company manufactures shirts. During June, Longman made 1,900 shirts but had budgeted production at 2,150 shirts. Longman gathered the following additional data:
Variable overhead cost standard $0.80 per DLHr
Direct labor efficiency standard 4.50 DLHr per shirt
Actual amount of direct labor hours 8,620 DLHr
Actual cost of variable overhead $10,344
Fixed overhead cost standard $0.10 per DLHr
Budgeted fixed overhead $968
Actual cost of fixed overhead $1,033
Required:
a. Calculate the variable overhead cost variance.
b. Calculate the variable overhead efficiency variance.
c. Calculate the total variable overhead variance.
d. Calculate the fixed overhead cost variance.
e. Calculate the fixed overhead volume variance
Answer:
a. variable overhead cost variance- $3,448 Unfavorable
b. variable overhead efficiency variance- $ 56 unfavorable
c. total variable overhead variance - $3,504 Unfavorable
d. fixed overhead cost variance - $65 unfavorable
e. Fixed overhead volume variance -$ 112.5 unfavorable
Explanation:
Variable overhead rate variance $
8,620 hours should have cost (8,620 × $0.80) 6896
but did cost 10,344
Variable overhead rate variance 3,448 Unfavorable
Variable overhead rate variance =$3,448 unfavorable
Efficiency variance Hours
190 units should have taken (1,900 × 4.50 hrs) 8,550
but did take 8,620
Efficiency variance in hours 70 unfavorable
Standard rate × $0.80
Efficiency variance $ 56 unfavorable
Efficiency variance =$ 56 unfavorable
Total variable overhead= rate variance +efficiency
Total variable overhead = $3,448 UF + $ 56 UF = $3,504 U
Total variable overhead = $3,504 Unfavorable
Fixed overhead cost variance
$
Budgeted cost 968
Actual cost 1,033
Fixed overhead cost Variance 65 unfavorable
Fixed Overhead Volume
Units
Budgeted units 2,150
Actual units 1,900
Variance 250
Standard fixed cost per unit (Notes) $0.45
Volume Variance 112.5 unfavorable
Standard fixed overhead cost per unit
= standard hours × standard Fixed overhead rate = 4.5 × $0.1= $0.45
a. variable overhead cost variance- $3,448 Unfavorable
b. variable overhead efficiency variance- $ 56 unfavorable
c. total variable overhead variance - $3,504 Unfavorable
d. fixed overhead cost variance - $65 unfavorable
e. Fixed overhead volume variance -$ 112.5 unfavorable
Deming, the proponent of total quality management, argued that management has the responsibility to train employees in new skills.
A. True
B. False
Answer:
Its TRUE
Explanation:
Management should train employees in new skill, where Deming argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company.
One year ago, you purchased a stock at a price of $55.20 per share. Today, you sold your stock at a loss of 18.63 percent. Your capital loss was $12.62 per share. What was the total dividends per share paid on this stock over the year
Answer:
Dividend = $2.34
Explanation:
Purchase Price = $55.20
Loss on stock = 18.63% of $55.20 = $10.28
Capital Loss = $12.62
Dividend = Capital Loss - Total Loss
Dividend = $12.62 - $10.28
Dividend = $2.34
All of the following are factors that may complicate capital investment analysis except a.qualitative factors. b.changes in price levels. c.the federal income tax. d.the age of the current fixed assets.
Answer:
Correct Answer:
a.qualitative factors.
Explanation:
Capital investment analysis is the process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets. For example, in a situation where a decision was taken to install new equipment, replace old equipment, and purchase or construct a new building.
Answer:
d.the age of the current fixed assets.
Explanation:
The age of current fixed assets is straight forward since it was set at start of operation based on company`s usage thus within the entity`s control.
However the other factors makes capital investment analysis complex as they are not within the entity`s control.
Slow 'n Steady, Inc., has a stock price of , will pay a dividend next year of , and has expected dividend growth of per year. What is your estimate of Slow 'and Steady cost of equity capital
Answer:
Slow 'and Steady cost of equity capital is 11%.
Explanation:
Note: The question is not complete as the important data are committed. The full question is therefore provided before answering the question as follows:
Slow n' steady Inc, has a stock price of $30, will pay a dividend next year of $3, and has expected dividend growth of 1% per year. what is your estimate of slow n steady's cost of equity capital?
The explanation to the answer is now given as follows:
The cost of equity can be calculated using the Gordon growth model (GGM) formula for calculating current stock price
The GGM has the assumption that there will be a stable dividend growth rate year after year forever.
Tje GGM formula is given as follows:
P = d1 / (r - g) ……………………………………… (1)
Where;
P = Current share price = $30
d1 = Next year dividend = $3
r = Required rate of return or cost of equity = ?
g = Expected dividend growth rate = 1%, or 0.01
Substituting the values into equation (1) and solve for r, we have:
30 = 3 / (r - 0.01)
r - 0.01 = 3 / 30
r - 0.01 = 0.10
r = 0.10 + 0.01
r = 0.11, or 11%
Therefore, Slow 'and Steady cost of equity capital is 11%.
