Answer:
d.$4,662.40 unfavorable
Explanation:
Calculation for direct materials price variance
The first step is to find the Actual quantity variance using the formula
Actual quantity variance =Actual units produced* Actual yard used
Let plug in the formula
Actual quantity variance=9,400*4.96 yards
Actual quantity variance=$46,624
Second step is to calculate for the Direct material price variance using this formula
Direct material price variance= ( Standard price -Actual price)* Actual quantity used
Let plug in the formula
Direct material price variance=($1.93-$2.03)*$46,624
Direct material price variance=(-0.1*46,624)
Direct material price variance=-$4,662.40 Unfavorable
Therefore the Direct material price variance will be $4,662.40 Unfavorable
. A particular parcel of real estate (land) is sold for $20,000,000 and was originally purchased for $10,000,000. On a taxable sale, explain a circumstance (type of investor, intent, entity, etc.) that would pay the following U.S. federal income tax results on the $10,000,000 gain (exclude the 3.8% net investment income tax and any state taxes in the calculation):
Question Completion:
Choices: a. No tax liability on the sale b. $2,000,000 of tax c. $2,960,000 of tax d. $2,100,000 of tax
Answer:
b. $2,000,000 of tax for individuals
Explanation:
Long-term capital gains tax is a tax on profits from the sale of an asset which an investor has held for more than a year. The approved long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income bracket and whether you are filing as a single or jointly as married. But, an important point to note is that long-term capital gains tax rates are generally lower than short-term capital gains tax rates, thus encouraging investors to hold assets for a longer time. Short-term capital gains tax rates are the rates applicable to the normal individual income tax brackets.
Company X's current assets increased by $40 million from 2007 to 2008, while the company's current liabilities increased by $25 million over the same period. The cash impact of the change in working capital was:
a. A decrease of $15 million
b. An increase of $15 million
c. An increase of $40 million
d. An increase of $25 million
Answer:
b. An increase of $15 million
Explanation:
The computation of the cash impact of the change in working capital is shown below:
As we know that
Working capital = Current assets - current liabilities
So, the change in working capital is
= Increase in current assets - increased in current liabilities
= $40 million - $25 million
= $15 million
Hence, the b option is correct
the gross sales for store B were 876500. the custmer returns and allowances were 10%. what was the dollar amount of returns and allowances
Answer:
$87,650
Explanation:
The computation of the dollar amount of returns and allowances is shown below:
= Gross sales for store B × customer returns and allowances percentage
= $876,500 × 10%
= $87,650
By multiplying the gross sales with the customer returns and allowances percentage we can get the dollar amount with respect to the returns and allowances and the same is to be considered
The federal government has the legal authority to prevent a company from adding products through acquisitions if the acquisition threatens to lessen competition.
A. True
B. False
Answer:
True
Explanation:
One way of determining if acquisitions would lessen competition is through the calculation of the HHI. if the HHI of the industry is more than 1500 before the acquisition and the HHI changes by more than 50 after the acquisition, the government would challenge the merger
Yellowstone Corporation has just announced the repurchase of $125,000 of its stock. The company has 39,000 shares outstanding and earnings per share of $3.29. The company stock is currently selling for $76.09 per share. What is the price–earnings ratio after the repurchase?
Answer:
The price–earnings ratio after the repurchase is 22.18
Explanation:
First calculate Numbers of new shares
New Shares = Old Shares - ( Repurchased Shares / Price per share )
New Shares = 39,000 - ( $125,000 / $76.09 )
New Shares = 39,000 - 1,642.79
New Shares = 37,357.21 shares
New compute the old earning
Old Earning = EPS x Numbers of old shares = $3.29 x 39,000 = $128,310
New compute revised Earning per share
Revised EPS = Earning / New shares = $128,310 / 37,357.21 shares = $3.43
Now we need to calculate the Price earning ratio
P/E Ratio = Price per share / Revised earning per share = $76.09 / $3.43 = 22.18 times
You must decide between $25,000 in cash today or $30,000 in cash to be received two years from now. If you can earn 8 percent interest on your investments, which is the better deal?
Answer:
The deal to receive $30000 is better.
Explanation:
To find the better deal we need to calculate the present value of $30000 and then compare it with the amount $25000. If the amount is greater than the $25000, then the amount should be received after the 2 years.
The given time period (n )= 2
Interest rate (r ) = 8%
The amount received after 2 years = $30000
[tex]\text{Present value of money} = \frac{Future \ value}{(1 + r)^n } \\= \frac{30000}{(1+0.08)^2} \\= $25720.16[/tex]
Since the amount is more than $25000 so the deal to receive the money after 2 years will be better.
In capital rationing, alternative proposals that survive initial screening by cash payback and average rate of return methods are further analyzed using:________
Answer:
Net present value and internal rate of return
Explanation:
when making a decision between alternative projects, initial analysis is done with the cash payback and average rate of return.
Cash payback period calculates the amount of time it takes to recover the amount invested in a project from its cumulative cash flows
Average rate of return = Average net income / average book value.
this is followed by the Net present value analysis and Internal rate of return determination.
Net present value is the present value of after tax cash flows from an investment less the amount invested.
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
project with the highest positive project NPV should be chosen.
Also, a project with an IRR greater than the discount rate should be chosen. when choosing between alternative projects, the project with the highest IRR should be chosen if the IRR is greater than the discount rate.
15. Karla Salons leased equipment from Smith Co. on July 1, 2021, in a finance lease. The present value of the lease payments discounted at 10% was $81,100. Ten annual lease payments of $12,000 are due each year beginning July 1, 2021. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $81,100. What amount of interest revenue from the lease should Smith Co. report in its December 31, 2021, income statement
Answer: $3,455
Explanation:
The interest received by Smith can be calculated as;
Interest Value = Present value of lease payment * interest rate
Present Value of interest rate
Ten annual lease payments of $12,000 are due each year beginning July 1, 2021.
That means first payment has been made already. Present value is;
= 81,100 - 12,000
= $69,100
Only half a year has gone by so this will need to be reflected;
Interest Value = Present value of lease payment * interest rate
= 69,100 * 10% * 6/12
= $3,455
Drake Manufacturing makes a variety of products, including lawn mowers. 's Lawn Mower Division can use a component, K32, manufactured by 's Electrical Division. The market price for K32 is per unit. The variable cost per unit for K32 in the Electrical Division is $11, while the absorption cost per unit is $12. The divisions at use a negotiated price strategy to set transfer prices between divisions. The Electrical Division has excess capacity. What is the lowest acceptable transfer price to the Electrical Division? What is the highest acceptable transfer price that the Lawn Mower Division would pay?
1. ______the lowest acceptable transfer price to the Electrical Division.
a. $14, the difference between the variable cost and market price.
b. $11, the variable cost.
c. $12, the absorption cost.
d. $25, the market price.
2. ______is the highest acceptable transfer price that the Lawn Mower Division would pay.
a. $14, the difference between the variable cost and market price.b. $11, the variable cost. c. $12, the absorption cost.d. $25, the market price.
Answer:
b. $11, the variable cost.d. $25, the market price.Explanation:
1. The Electrical Division has excess capacity so supplying the Lawn Mower Division can be done and they will still be able to sell to outside customers. They should therefore only charge the variable cost to make component K32 which is $11 as they are in the same company.
2. The highest acceptable transfer price that the Lawn Mower division would pay is the market price of $25. At a price higher than this, it would make no sense to source the component from the Electrical division because the Lawn Mower division could simply source it from the market and save on costs.
The production sector would NOT include Group of answer choices a Florida orange grove a California wine grower a meat packing plant
Answer: Meat packing plant
Explanation:
The options to the question are:
A. California wine grower
B. meat packing plant
C. horticultural nursery
D. Florida orange grove
E. none of the above
Of all the options given in the question, the correct answer is meat packing plant. It should be noted that the meat packaging plant will not be part of the production sector due to the fact that no productive activities are taking place, it only involves in services.
Empirical evidence from 1960 to 2010 shows that convergence in economic growth is occurring in which of the following cases?
a. All low-income countries are catching up to all high-income countries.
b. Low-income industrial countries are catching up to high-income developing countries.
c. Low-income developing countries are catching up to high-income industrial countries.
d. Low-income industrial countries are catching up to high-income industrial countries.
Answer:
Correct Answer:
c. Low-income developing countries are catching up to high-income industrial countries.
Explanation:
The evidence which shows that low income developing countries are catching up to high-income industrial countries could be found in the series of developmental strides made by some countries like Rwanda, Kenya, Tanzania, Indonesia, Vietnam etc over the years. Most of their achievements is at par with most European countries in different sectors such as educational, and social sectors.
Which of the following is an advantage of a CD?
usually a higher interest rate
saving for a short-term purpose
flexible withdrawals
can be cashed out every year
Answer:
An Advantage of a Certificate of Deposit (CD) is:
It usually offers a higher interest rate.
Explanation:
For instance, Jones Company can purchase a certificate of deposit (CD) from Bank A. The CD is a financial product that pays a locked and premium interest rate. In exchange for this locked and higher interest rate, Jones Ltd agrees to leave a lump-sum deposit which it cannot withdraw from until a predetermined period of time. A CD is not a saving for a short-term purpose, and does not allow for flexible withdrawals unless after the maturity date has been reached. This implies that Jones Ltd cannot cash it out unless after the maturity date.
Hughey Co. as lessee records a capital lease of machinery on January 1, 2011. The seven annual lease payments of $350,000 are made at the end of each year. The present value of the lease payments at 10% is $1,704,000. Hughey uses the effective-interest method of amortization and sum-of-the-years'-digits depreciation (no residual value). Round to the nearest dollar.
a) Prepare an amortization table for 2 011 and 2012.
b) Prepare all of Hughey's journal entries for 2011.
Answer:
Both requirements are solved below
Explanation:
An amortization table can be made as follows
DATA
Lease term = 7years
annual lease payments = $350,0000
Present value of the leases payment = $1,704,000
Implicit interest rate = 10%
Requirement A Amortization table for 2011 and 2012
Date Annual payment Effective decreased Balance
interest liability $1,704,000
12/31/11 $350,000 $170,400 $179,600 $1524,400
12/31/12 $350,000 $152,440 $197,560 $1,326,840
Requirement B journal entries for 2011
January 1
Entry
DEBIT CREDIT
Leased machinery $1,704,000
Lease liability $1,704,000
December 31
Entry
DEBIT CREDIT
Interest expense $170,400
Lease liability $179,600
Cash $350,000
December 31
Entry
DEBIT CREDIT
Depreciation expense(w) $426,000
Accumulated depreciation $426,000
Working
Sum of the years = (7+6+5+4+3+2+1) = 28
Cost = $1,704,000
Residual value = $0
Estimated life = 7years
Depreciation expense = $1,704,000 x 7/28
Depreciation expense = $426,000
An increase in input prices causes:___________
a) the market supply to shift inward, driving the equilibrium price downward.
b) the market supply to shift outward, leading to a higher equilibrium price.
c) the market supply to shift inward, driving the equilibrium price higher.
d) the supply curve to decrease and the demand curve to decrease.
Answer: the market supply to shift inward, driving the equilibrium price higher.
Explanation:
An increase in input prices will result into a rise in the production costs. This will result in a leftward shift of the supply curve.
Therefore, the market supply will shift inward, driving the equilibrium price higher. This simply means that there will be lesser supply of the product and hence, increase in price.
Which of the following statements are TRUE regarding the sale of a long position in a restricted long margin account?
I. 50% of the proceeds of the sale are credited to SMA
II. 100% of the proceeds of the sale are credited to SMA
III. There is a 0% retention requirement of the sale for a restricted account
IV. There is a 50% retention requirement of the sale for a restricted account
a. I and III
b. I and IV
c. II and III
d. II and IV
Answer:
b
Explanation:
50% of the proceeds of the sale are credited to SMA
and
There is a 50% retention requirement of the sale for a restricted account
valdes corporation had a credit balance in the allowance for doubtful accounts of $62,000 at 1/1/19 during 2019, it wrote off $21,400 of accounts and collected $7,800 on accounts previously written off, the amount of bad debt expense recoginzed in 2019 is $11,000. if valdes estimates at the year end that 6% accounts receivable will prove to be uncollectible what is the account receivable balance at 12/21/2019
Answer:
The account receivable balance at 12/31/2019 is $990,000
Explanation:
Ending balance of allowance account = Beginning allowance + Bad debt expense - Doubtful accounts written off + Amount collected on written off doubtful account
Ending balance of allowance account = $62,000 + $11,000 - $21,400 + $7,800
Ending balance of allowance account = $59,400
Accounts receivable balance at 12/31/2019 = $59,400 / 6%
=$990,000
Garcia Co. sells snowboards. Each snowboard requires direct materials of $105, direct labor of $35, and variable overhead of $50. The company expects fixed overhead costs of $645,000 and fixed selling and administrative costs of $111,000 for the next year. It expects to produce and sell 10,500 snowboards in the next year.
Required:
What will be the selling price per unit if Garcia uses a markup of 15% of total cost?
Answer:
Selling price = $301.3
Explanation:
The selling price would be determined by adding the total unit cost to the mark- up.
Mark up is the proportion of cost that is to be earned as profit.
Selling price = Total unit cost + Profit
Profit = 25% × unit cost
Selling price = Unit cost + Mark-up
Selling price = Unit cost + (15%× unit cost)
Total unit cost =Variable cost + unit fixed cost
Total fixed cost = 645,000 + 111,000 = 756,000
Unit fixed cost = $756,000 /10,500 =×72
Total unit cost = 105 + 35 + 50 + 72 = 262
Selling price = 262 + ( 15% + 262) = 301.3
Selling price = $301.3
Uber's guidance that if a driver's "rating over the most recent 100 trips is below a 4.6, your profile may be at risk of deactivation" represents which step in the control process?
a. take corrective action, if necessary
b. compare performance to standards
c. recognize success
d. measure performance
e. establish standards
Answer:
e. establish standards
Explanation:
-Take corrective action, if necessary is when managers decide strategies to implement when the results are not meeting the standards that were established.
-Compare performance to standards is the step that determines if there is a difference between the company's performance and the standards.
-Recognize success is not a step in the control process.
-Measure performance refers to gather and analyze data to determine if the company is meeting the goals set.
-Establish standards refers to establishing goals that are specific, attainable and clear to be able to evaluate the company's performance.
According to this, the answer is that Uber's guidance that if a driver's "rating over the most recent 100 trips is below a 4.6, your profile may be at risk of deactivation" represents establish standards because Uber established a rating that driver's need to achieve which represents the standard that would be use to evaluate them.
If an economist wishes to determine whether there is evidence that average family incomes in a community exceeds $25,000:_______
a. either a one-tailed or two-tailed test could be used with equivalent results.
b. a one-tailed test should be utilized.
c. a two-tailed test should be utilized.
d. None of the above.
Answer: one tailed test should be utilized
Explanation:
From the question, we are informed that an economist wishes to determine whether there is evidence that average family incomes in a community exceeds $25,000.
A one tailed test should be utilized because the region of rejection will just have to be based on one side.
If the current interest rate is 5% and your semi-annual coupon paying bond has a duration of 5.33 years, how much will the price of the bond change if the interest rate increases by 1 basis point?
Answer:
Percentage change in price = -5.33 * 0.00005
Explanation:
Percentage change in price = - modified duration * (Change in yield in BP/100)
Percentage change in price = -5.33 * ((0.01/2)/100)
Percentage change in price = -5.33 * (0.005/100)
Percentage change in price = -5.33 * 0.00005
A self-employed client has an annual income of $200,000 and is in a high tax bracket. He is not covered by a retirement plan and would like to make the maximum contribution to one to reduce his taxable income. He believes that he will be in a lower tax bracket once he retires. The BEST recommendation is to contribute to a:
Answer:
Simplified Employee Pension IRA (SEP)
Explanation:
Simplified employee pension IRA is most suitable for this client because it is easy to set up and operate. Most importantly it requires a maximum of 20% of the contributor's income. The amount required is capped at $54,000.
In this case 20% of the employee's income is 0.20 * 200,000 = $40,000
So this is a right fit.
Roth IRA will not work because maximum contribution is $5,500
Traditional IRA will also not work because it requires a maximum contribution of $5,500 or when it is a 401(k) plan a maximum of $18,000. It is also expensive to set up and operate as it is designed for big companies.
A firm has a debt-to-equity of 0.69 and a market-to-book ratio of 3.0. What is the ratio of the book value of debt to the market value of equity?
Answer:
0.23
Explanation:
Debt to Equity Ratio = Total debt/ Total common equity
Market to book Ratio = Market price per share / Book value per share
Book debt to Market equity Ratio = Debt to Equity Ratio / Market to book Ratio
Book debt to Market equity Ratio = 0.69 / 3
Book debt to Market equity Ratio = 0.23
Therefore, the ratio is 0.23
Food Shoppe Galore had the following information: Total market value of a company’s stock: $650 million Total market value of the company’s debt: $150 million What is the weighted average of the company’s debt?
Answer:
18.75%
Explanation:
Food Shoppe galore has a total market value stock of $650 million
The total market value of the company's debt is $150 million
The first step is to calculate the total market value of the company's capital
= $150,000,000 + $650,000,000
= $800,000,000
Therefore, the weighted average of the company's debt can be calculated as follows
= $150,000,000/$800,000,000
= 0.1875×100
= 18.75%
Hence the weighted average of the company's debt is 18.75%
A U.S. manufacturing company operating a subsidiary in an LDC (less-developed country) shows the following results:
U.S. LDC
Sales (units) 100,000 20,000
Labor (hours) 20,000 15,000
Raw materials (currency) $20,000 FC 20,000
Capital equipment (hours) 60,000 5,000
a. Calculate partial labor and capital productivity figures for the parent and subsidiary. Do the results seem confusing?
b. Compute the multifactor productivity figures for labor and capital together. Do the results make more sense?
c. Calculate raw material productivity figures (units/$ where $1=FC 10). Explain why these figures might be greater in the subsidiary.
Answer:
a. Labor Productivity:
Country Sales (Units) Labour (hours) Productivity (Sales/Labour hours)
U.S 100,000 20,000 5 units / hours
LDC 20,000 15,000 1.33 units/ hours
Capital Productivity
Country Sales (Units) Capital (hours) Productivity (Sales/Capital hours)
U.S 100,000 60,000 1.67 units / hour
LDC 20,000 5,000 4 units / hours
Conclusion: Yes, the result seems confusing. The labour productivity in U.S. is higher than LDC while the capital productivity in U.S. is lower than LDC which is contradictory.
b. Multi-factor productivity for Labor and Capital
Country Sales Input Productivity
(Units) (Labor + Capital) (units/hours)
U.S. 100,000 80,000 1.25 units/hour
(20,000 + 60,000)
LDC 20,000 20,000 1 units/hour
(15,000 + 5,000)
Conclusion: Yes it make sense as multi-factor productivity is better than partial productivity. Labor and capital are subtitles and that gives better presentation of the productivity.
c. Raw material productivity
Country Sales Raw material Productivity
(Units) (Currency) (units/hours)
U.S. 100,000 $20,000 5 units per dollar
LDC 20,000 = $2,000 10 units per dollar
Conclusion: The figures are greater in subsidiary because the price paid for raw material is much slower than the parent country.
Note: $1 = FC 10
$20,000 = FC 10
FC = $20,000 / 10 = $2,000
Excellent Manufacturers Inc. has a current production level of 20,000 units per month. Unit costs at this level are: Direct materials $0.26 Direct labor 0.40 Variable overhead 0.16 Fixed overhead 0.21 Marketing − fixed 0.25 Marketing/distribution − variable 0.42 Current monthly sales are 18,000 units. Jax Company has contacted Excellent about purchasing 1,550 units at $2.00 each. Current sales would NOT be affected by the one−time−only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
Answer:
The increase in operating profit is $1,829.00.
Explanation:
The rise or fall in the operating income:
= Purchase unit × ( offer price- direct material- direct labor- variable overhead)
The rise or fall in the operating income: = 1550× (2 - 0.26 - 0.4 - 0.16)
The rise or fall in the operating income: = $1829
Therefore the profit will increase by $1829
Here all the fixed cost is not considered because it is a sunk cost and variable and administrative expenses are also not considered because these costs are not going to be incurred for offer.
Buckson Framing's cost formula for its supplies cost is $1,350 per month plus $18 per frame. For the month of June, the company planned for activity of 716 frames, but the actual level of activity was 713 frames. The actual supplies cost for the month was $14,820. The supplies cost in the flexible budget for June would be closest to:
Answer:
c. $ 14,238
Explanation:
Computation of costs in the flexible budget
Planned activity 716 units
Budgeted cost per unit $ 18 per frame
Total planned variable cost - 716 units * $ 18 $ 12,888
Fixed monthly cost $ 1,350
Total supplies cost in flexible budget for June $ 14,238
The other information regarding the actual costs and actual production are not required for determining the budgted cost for supplies.
100 million diluted shares outstanding trading at $37.50 per share. The company has $1 billion of debt outstanding with a cost of debt at 6.5% at a marginal tax rate of 40%. The company has $100 million of cash on its balance sheet. What is the enterprise value of Correct Inc.
Answer:
$4,650,000,000
Explanation:
We will use the formula below to calculate the enterprise value of Correct inc.
Enterprise value = Market value capital and debts - Cash and investments
= 100 million diluted shares × 37.50 per share + $1 billion of debt outstanding - $100 million cash
= $3750m + $1000m - $100m
= $4,650,000,000.
An assembly line with 17 tasks is to be balanced. The longest task is 2.4 minutes, and the total time for all tasks is 18 minutes. The line will operate for 450 minutes per day.Required:a. What are the minimum and maximum cycle times? b. What range of daily output is theoretically possible for the line? c. What is the minimum number of workstations needed if the maximum output rate is to be sought?d. What cycle time will provide an output rate of 125 units per day?
Answer
a)Minumum cycle time = 2.4 Minutes And Maximum cycle time = 18 Minutes
b)=187.5 units per day and 25 units per day
c) 8 workstation
d)2.6min/cycle
Explanation:
Given:
output rate = 125 units per day
Operating time= 450 minutes per day
What are the minimum and maximum cycle times?
Minimum Cycle time = duration of the longest task
Therefore,Minimum cycle time = 2.4 minutes
Maximum cycle time = addition of the task
Maximum Cycle Time = 18 minutes
Therefore, Minumum cycle time = 2.4 Minutes And Maximum cycle time = 18 Minutes
B)B)What range of daily output is theoretically possible for the line?
Range of daily output = Operating time / minimum Cycle time
At 2.4 minutes Cycletime
= 450/2.4
=187.5 units per day
At Cycle time 18 Minutes
= 450/18
Cycle time 18 minutes = 25 units per day
C)What is the minimum number of workstations needed if the maximum output rate is to be sought?
number of workstation=(D× summation of all task)/Operating time
number of workstation=(187.5*18)/450
= 7.5= 8 workstation
D)What cycle time will provide an output rate of 125 units per day?
cycle time= Operating time/output rate
=450/125
= 2.6min/cycle
Use goal seek to answer this question. All else equals, to have a net income of 20,000, the COGS margin percentage must be ______, and the gross profit must be ______. Review Later
Answer:
Use goal seek to answer this question. All else equals, to have a net income of 20,000, the COGS margin percentage must be 40%, and the gross profit must be $17,250.
Explanation:
The income statement is missing, so I looked it up and the information given was:
Revenue 100,000 COGS 40,000 Gross Profit 60,000 Salaries Marketing Rent Earnings Before Tax 23,000Income Tax 25% Net Income ?Since COGS are$40,000 and total sales are $100,000, the COGS margin percentage = 40,000 / 100,000 = 40%
Since earnings before taxes are $23,000 and taxes are 25%, then net income = $23,000 x (1 - 25%) = $23,000 x 75% = $17,250
Sonny's BBQ Company recently issued $85 par value preferred stock that pays an annual dividend of $9. Analysts estimate that the stock has a beta of 1.01. The current T-bill rate is 2.4%. The S&P 500's expected return is 12.1%. Assuming that CAPM holds, what is the intrinsic value of this preferred stock?
Answer:
Intrinsic value=$73.77
Explanation:
The Dividend Valuation Model(DVM) is a technique used to value the worth of an asset.
According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return.
Price = D/Kp
D- Dividend payable
Kp- cost of preferred stock
So will need to work out the cost of equity using CAPM
The capital asset pricing model (CAPM): relates the price of a share to the market risk or systematic risk. The systematic risk is that which affects all the all the economic agents, e.g inflation, interest rate e.t.c
This model is considered superior to DVM. Hence, we will use the CAPM
Using the CAPM , the expected return on a asset is given as follows:
E(r)= Rf +β(Rm-Rf)
E(r) =? , Rf- 2.4%, Rm- 12.1% β- 1.01
E(r) = 2.4% + 1.23×(12.1- 2.4)% = 12.20 %
Cost of preferred stock= 12.20 %
Using the dividend valuation model
Intrinsic value = 9/0.1220=73.77
Intrinsic value=$73.77
