Finance Final TR 9:30
Lifeline, Inc., has sales of $592,000, costs of $266,000, depreciation expense of $67,500, interest expense of $34,500, and a tax rate of 28 percent. Required: What is the net income for this firm?
$592,000 - $266,000 - $67,500 = $258,500 $258,500 - $34,500 = $224,000 $224,000 x 28% = $62,720 $224,000 - $62,720 = $161,280
Present value: $805; Future value: $1,561; Period: 4 years. Solve for rate.
(1561/805)^1/4 - 1 = 18.01%
The nominal rate of return on the bonds of Stu's Boats is 7.25 percent. The real rate of return is 2.5 percent. What is the rate of inflation? 3.63 percent 4.75 percent 2.90 percent 4.63 percent 4.88 percent
1 + 0.0725 = (1 + h) × (1 + 0.025) h = 4.63 percent
A bond that pays interest annually yields a rate of return of 10.00 percent. The inflation rate for the same period is 4 percent. What is the real rate of return on this bond? 2.50 percent 14.00 percent 1.06 percent 4.00 percent 5.77 percent
1 + 0.1000 = (1 + r) × (1 + 0.04) r = 1.1000 / 1.04 - 1 = 5.77 percent
The outstanding bonds of Roy Thomas, Inc. provide a real rate of return of 3.7 percent. The current rate of inflation is 2.2 percent. What is the nominal rate of return on these bonds? 1.50 percent 1.06 percent 5.98 percent 5.90 percent 1.01 percent
1 + R = (1 + 0.037) × (1 + 0.022) R = 5.98 percent
Arredondo, Inc., has current assets of $2,330, net fixed assets of $10,900, current liabilities of $1,430, and long-term debt of $4,140. Requirement 1: What is the value of the shareholders' equity account for this firm? Requirement 2: How much is net working capital?
1. $7,660 OE = Total liabilities & equity - Current liabilities - Long-term debt = $13,230(current + net fixed) - 1,430 - 4,140 = $7,660 2. $900 NWC = Current assets - Current liabilities = $2,330 - 1,430 = $900
Your parents are giving you $110 a month for 5 years while you are in college. At a 6 percent discount rate, what are these payments worth to you when you first start college?
110 x {1-[1/[1+(.06/12)]^(5x12)} / (.06/12) = 5,689.81
Gugenheim, Inc. offers a 8 percent coupon bond with annual payments. The yield to maturity is 5.20 percent and the maturity date is 7 years. What is the market price of a $1,000 face value bond? $1,276.94 $1,170.90 $1,150.80 $928.68 $1,160.85
1160.85
Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 740,000 shares of stock outstanding. Under Plan II, there would be 490,000 shares of stock outstanding and $8.00 million in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes. Requirement 1: (a) Assume that EBIT is $2.1 million, compute the EPS for Plan I. (b) Assume that EBIT is $2.1 million, compute the EPS for Plan II. Requirement 2: (a) Assume that EBIT is $3.6 million, compute the EPS for Plan I. (b) Assume that EBIT is $3.6 million, compute the EPS for Plan II. Requirement 3: What is the break-even EBIT?
1: a. EPS = $2,100,000/740,000 shares EPS = $2.84 b. EPS = $1,300,000/490,000 shares EPS = $2.65 2: a. EPS = $3,600,000/740,000 shares EPS = $4.86 b. EPS = $2,800,000/490,000 shares EPS = $5.71 3: EBIT/740,000 = [EBIT - 0.10($8,000,000)]/490,000 EBIT = $2,368,000
The Good Life Insurance Co. wants to sell you an annuity which will pay you $600 per quarter for 25 years. You want to earn a minimum rate of return of 5.5 percent. What is the most you are willing to pay as a lump sum today to buy this annuity? $32,499.53 $27,352.33 $28,955.40 $28,437.95 $32,193.44
600 x {1-[1/[1+(.055/4)]^(25x4)} / (.055/4) = 32,499.53
At the beginning of the year, long-term debt of a firm is $310 and total debt is $340. At the end of the year, long-term debt is $270 and total debt is $350. The interest paid is $36. What is the amount of the cash flow to creditors? a. $76 b. $40 c. -$40 d. $36 e. -$76
CFC = $36 - ($270 - 310) = $76
Peggy Grey's Cookies has net income of $330. The firm pays out 37 percent of the net income to its shareholders as dividends. During the year, the company sold $78 worth of common stock. What is the cash flow to stockholders? $93.24 $44.10 $200.10 $122.10 $207.90
CFS = (0.37 × $330) - $78 = $44.10
The December 31, 2009, balance sheet of Schism, Inc., showed long-term debt of $1.445 million, and the December 31, 2010, balance sheet showed long-term debt of $1.67 million. The 2010 income statement showed an interest expense of $98,500. Required: What was the firm's cash flow to creditors during 2010?
Cash flow to creditors = Interest paid - Net borrowing (LTDend - LTDbeg) Cash flow to creditors = $98,500 - ($1,670,000 - 1,445,000) Cash flow to creditors = $-126,500
Shares of common stock of the Samson Co. offer an expected total return of 20.2 percent. The dividend is increasing at a constant 4.3 percent per year. The dividend yield must be: 4.70 percent. 15.90 percent. 4.30 percent. 20.20 percent. 24.50 percent
Dividend yield = 0.202 - 0.043 = 15.90 percent.
You recently purchased a stock that is expected to earn 27 percent in a booming economy, 16 percent in a normal economy, and lose 3 percent in a recessionary economy. There is a 27 percent probability of a boom, a 64 percent chance of a normal economy, and a 9 percent chance of a recession. What is your expected rate of return on this stock? 2.50 percent 14.33 percent 8.63 percent 17.26 percent 13.33 percent
E(R) = (0.27 × 0.27) + (0.64 × 0.16) + (0.09 × -0.03) = 0.1726 = 17.26 percent
If the economy booms, RTF, Inc. stock is expected to return 13 percent. If the economy goes into a recessionary period, then RTF is expected to only return 4 percent. The probability of a boom is 80 percent while the probability of a recession is 20 percent. What is the variance of the returns on RTF, Inc. stock? .001296 .001037 .000778 .036000 .056000
E(R) = (0.80 × 0.13) + (0.20 × 0.04) = 0.1120 σ2 = 0.80 × (0.13 - 0.1120)2 + 0.20 × (0.04 - 0.1120)2 = 0.000259 + 0.001037 = 0.001296
The risk-free rate of return is 4.2 percent and the market risk premium is 11 percent. What is the expected rate of return on a stock with a beta of 1.8? 18.56 percent 24.00 percent 9.28 percent 19.80 percent 12.00 percent
E(R) = 0.042 + 1.80 × 0.11 = 0.2400 = 24.00 percent
Teddy's Pillows has beginning net fixed assets of $458 and ending net fixed assets of $524. Assets valued at $306 were sold during the year. Depreciation was $16. What is the amount of net capital spending? a. $50 b. $234 c. $82 d. $388 e. $66
c. $82 $524 + $16 - $458 = $82
The stock of Big Joe's has a beta of 1.52 and an expected return of 12.70 percent. The risk-free rate of return is 5.2 percent. What is the expected return on the market? 4.80 percent 8.61 percent 7.50 percent 10.13 percent 15.40 percent
E(R) = 0.127 = 0.052 + 1.52 × (E(RM) − 0.052) 0.075 = 1.52 E(RM) − 0.0790 E(RM) = 0.1013 = 10.13 percent
The common stock of Flavorful Teas has an expected return of 14.31 percent. The return on the market is 9 percent and the risk-free rate of return is 3.1 percent. What is the beta of this stock? 1.90 3.60 0.95 1.81 0.53
E(R) = 0.1431 = 0.031 + β × (0.090 − 0.031) 0.1121 = 0.059β β = 1.90
The expected return on HiLo stock is 14.80 percent while the expected return on the market is 13.8 percent. The beta of HiLo is 1.27. What is the risk-free rate of return? 2.34 percent 1.00 percent 10.10 percent 11.37 percent 5.05 percent
E(R) = 0.1480 = Rf + 1.27 × (0.138 − Rf) 0.1480 = Rf + 0.17526 − 1.27Rf 0.27Rf = 0.0273 Rf = 0.1010 = 10.10 percent
You are paying an effective annual rate of 15.10 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on your account?
EAR = 0.151 = [1 + (r/12)]12 - 1 (0.151 + 1)1/12 = 1 + (r / 12) r = (1.1511/12 -1) × 12 r = 14.15 percent
Becker Industries is considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 38,000 shares of stock. The debt and equity option would consist of 19,000 shares of stock plus $315,000 of debt with an interest rate of 8 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.
EBIT / 38,000 shares = [EBIT − ($315,000 × 0.08)] / 19,000 shares 19,000 EBIT = 38,000 EBIT − $957,600,000 EBIT = $50,400
Your firm has net income of $312 on total sales of $1,320. Costs are $730 and depreciation is $110. The tax rate is 35 percent. The firm does not have interest expenses. What is the operating cash flow? $792 $312 $480 $422 $590
EBIT = $1,320 - $730 - $110 = $480 (Sales - Costs - Depreciation) Taxes = 0.35 × $480 = $168 (Tax rate × EBIT) OCF = $480 + $110 - $168 = $422 (EBIT + Depreciation - Taxes)
What is the future value of $1,580 in 15 years assuming an interest rate of 9.50 percent compounded semiannually?
FV = $1,580[1 + (0.0950/2)]30 FV = $6,357.38
What is the future value of $3,088 invested for 10 years at 6.1 percent compounded annually? $9,763.51 $10,092.18 $5,582.53 $4,170.20 $4,151.97
FV = $3,088 × 1.06110 = $5,582.53
One year ago, the Jenkins Family Fun Center deposited $4,000 in an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $5,800 to this account. They plan on making a final deposit of $8,000 to the account next year. How much will be available when they are ready to buy the equipment, assuming they earn a 7 percent rate of return? $21,741.77 $22,310.13 $20,435.23 $23,013.17 $21,774.79
FV = $4,000 × (1 + 0.07)5 + $5,800 × (1 + 0.07)4 + $8,000 × (1 + 0.07)3 = $23,013.17
Havana, Inc., has identified an investment project with the following cash flows. Requirement 1: Assume the discount rate is 7 percent, what is the future value of these cash flows in Year 4?
FV@7% = $1,090(1.07)3 + $1,320(1.07)2 + $1,540(1.07) + $2,280 = $6,774.36
Fleury Co. has a 38 percent tax rate. Its total interest payment for the year just ended was $42.8 million. Required: What is the interest tax shield?
Interest tax shield = Interest paid(TC) Interest tax shield = $42,800,000(0.38) Interest tax shield = $16,264,000
Lee Sun's has sales of $3,950, total assets of $3,650, and a profit margin of 6 percent. The firm has a total debt ratio of 42 percent. What is the return on equity? 6.00 percent 11.20 percent 5.64 percent 6.49 percent 8.93 percent
Net income = $3,950 × 0.06 = $237.00 Total debt ratio = 0.42 = ($3,650 - Total equity) / $3,650; Total equity = $2,117.00 Return on equity = $237.00 / $2,117.00 = 11.20 percent
A firm has a return on equity of 19 percent. The total asset turnover is 2.7 and the profit margin is 6 percent. The total equity is $4,300. What is the amount of the net income? $697 $258 $2,206 $303 $817
Net income = 0.19 × $4,300 = $817
A firm has a return on equity of 19 percent. The total asset turnover is 2.7 and the profit margin is 6 percent. The total equity is $4,300. What is the amount of the net income? a. $697 b. $258 c. $2,206 d. $303 e. $817
Net income = 0.19 × $4,300 = $817
Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $1.80 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 15.60 percent return on your equity investments? $8.67 $13.80 $17.40 $28.08 $11.54
P = $1.80 / 0.1560 = $11.54
E-Eyes.com has a new issue of preferred stock it calls 16/16 preferred. The stock will pay a $16 dividend per year, but the first dividend will not be paid until 16 years from today. Required: If you require a 8.00 percent return on this stock, how much should you pay today?
P15 = D16 / R P15 = $16 / 0.0800 P15 = $200.00 P0 = $200.00 / 1.080015 P0 = $63.05
NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.61 a share. The following dividends will be $0.66, $0.81, and $1.11 a share annually for the following three years, respectively. After that, dividends are projected to increase by 4.0 percent per year. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 14 percent? $9.08 $12.15 $2.27 $11.54 $12.01
P4 = ($1.11 × 1.040) / (0.14 - 0.040) = $11.54400 P0 = $0.61 / 1.14 + $0.66 / 1.142 + $0.81 / 1.143 + $1.11/ 1.144 + $11.54400 / 1.144 = $9.08
Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.65, $16.65, $21.65, and $3.45. Afterwards, the company pledges to maintain a constant 5.75 percent growth rate in dividends, forever. Required: If the required return on the stock is 11.75 percent, what is the current share price?
P4 = D4 (1 + g) / (R - g) P4 = $3.45(1.0575) / (0.1175 - 0.0575) P4 = $60.81 P0 = $5.65 / 1.12 + $16.65 / 1.122 + $21.65 / 1.123 + $3.45 / 1.124 + $60.81 / 1.124 P0 = $75.11
The MerryWeather Firm wants to raise $13 million to expand its business. To accomplish this, the firm plans to sell 20-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 7 percent. What is the minimum number of bonds the firm must sell to raise the $13 million it needs? Use annual compounding. 31,328 62,656 25,153 13,000 50,306
PV = $1,000 / 1.0720 = $258.42 Number of bonds = $13,000,000 / $258.42 = 50,306 bonds
George Jefferson established a trust fund that provides $166,500 in scholarships each year for worthy students. The trust fund earns a 5 percent rate of return. How much money did Mr. Jefferson contribute to the fund assuming that only the interest income is distributed? $2,938,059 $3,330,000 $3,996,000 $6,660,000 $4,995,000
PV = $166,500 / 0.05 = $3,330,000
Assume the appropriate discount rate for the following cash flows is 10.10 percent. Year Cash Flow 1 $2,050 2 1,950 3 1,650 4 1,450 What is the present value of the cash flows?
PV = FV / (1 + r)t PV = $2,050 / 1.101 + $1,950 / 1.1012 + $1,650 / 1.1013 + $1,450 / 1.1014 PV = $5,693.66
Imprudential, Inc., has an unfunded pension liability of $754 million that must be paid in 10 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. Required: If the relevant discount rate is 6 percent, what is the present value of this liability?
PV = FV / (1 + r)t PV = $754,000,000 / (1.06)10 PV = $421,029,661.79
Bath's Bank offers you a $71,000, eight-year term loan at 10.1 percent annual interest. Required: What will your annual loan payment be?
PVA = C({1 - [1/(1 + r)t]} / r ) $71,000 = C{[1 - (1/1.101)8 ] / 0.101} C = $71,000 / 5.31556 C = $13,357.01
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a $13.00 per share dividend in year 10 and will increase the dividend by 5.00 percent per year thereafter. Required: If the required return on this stock is 13.00 percent, what is the current share price?
Pt = [Dt × (1 + g)] / (R - g) P9 = D10/ (R - g) P9 = $13.00 / (0.1300 - 0.0500) P9 = $162.50 P0 = $162.50 / 1.13009 P0 = $54.09
The next dividend payment by Mosby, Inc., will be $2.55 per share. The dividends are anticipated to maintain a 6.00 percent growth rate, forever. Required: If the stock currently sells for $48.60 per share, what is the required return?
R = (D1 / P0) + g R = ($2.55 / $48.60) + 0.060 R = 0.1125 or 11.25%
Bohannon Corporation's common stock has a beta of 1.10. Assume the risk-free rate is 5.8 percent and the expected return on the market is 13.0 percent. Required: What is the company's cost of equity capital?
RE = 0.058 + 1.10(0.130 - 0.058) RE = 0.1372 or 13.72%
The Lo Tech Co. just issued a dividend of $2.20 per share on its common stock. The company is expected to maintain a constant 6 percent growth rate in its dividends indefinitely. Required: If the stock sells for $29.00 a share, what is the company's cost of equity?
RE = [$2.20(1.06)/$29.00] + 0.06 RE = 0.1404 or 14.04%
Sixth Fourth Bank has an issue of preferred stock with a $3.20 stated dividend that just sold for $42 per share. Required: What is the bank's cost of preferred stock?
RP = $3.20/$42 RP = 0.0762 or 7.62%
Jensen's Travel Agency has 11 percent preferred stock outstanding that is currently selling for $47 a share. The market rate of return is 9 percent and the firm's tax rate is 34 percent. What is Jensen's cost of preferred stock? 7.26 percent 23.40 percent 19.15 percent 7.96 percent 19.53 percent
RP = (0.11 × $100) / $47 = 0.234043 = 23.40 percent The assumed par value of a preferred stock is $100.
A firm wants a sustainable growth rate of 2.55 percent while maintaining a 35 percent dividend payout ratio and a profit margin of 4 percent. The firm has a capital intensity ratio of 2. What is the debt-equity ratio that is required to achieve the firm's desired rate of growth? 0.91 0.65 0.96 0.23 0.09
Sustainable growth rate = 0.0255 = [ROE × (1 - 0.35)] / {1 - [ROE × (1 - 0.35)]}; ROE = 0.03826 ROE = 0.03826 = 0.04 × (1 / 2) × Equity multiplier; Equity multiplier = 1.91 Debt-equity ratio = 1.91 - 1 = 0.91
Taxable Income Tax Rate $0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34% 100,001 - 335,000 39% What is the average tax rate for a firm with taxable income of $127,513? a. 39.00% b. 36.76% c. 25.86% d. 20.00% e. 28.35%
Taxes paid = 0.15($50,000) + 0.25($75,000 - 50,000) + 0.34($100,000 - 75,000) + 0.39($127,513 - 100,000) = $32,980.07 Average tax rate = $32,980.07 / $127,513 = 25.86%
Jack's Construction Co. has 100,000 bonds outstanding that are selling at par value. The bonds yield 9.9 percent. The company also has 4.4 million shares of common stock outstanding. The stock has a beta of 1.6 and sells for $40 a share. The U.S. Treasury bill is yielding 6 percent and the market risk premium is 9 percent. Jack's tax rate is 35 percent. What is Jack's weighted average cost of capital? 15.34 percent 7.67 percent 13.01 percent 18.07 percent 10.68 percent
The assumed par value of a bond is $1,000. WD = (100,000 × $1,000) / [(100,000 × $1,000) + (4,400,000 × $40)] = $100 million / $276.0 million = 0.3623 WE = (4,400,000 × $40) / [(100,000 × $1,000) + (4,400,000 × $40)] = $176 million / $276.0 million = 0.6377 E(RE) = 0.06 + (1.6 × 0.09) = 0.204 WACC = (0.6377 × 0.204) + [(0.3623 × 0.099) × (1 - 0.35)] = 0.1301 + 0.0233 = 0.1534 = 15.34 percent
A firm has sales of $1,150, net income of $219, net fixed assets of $530, and current assets of $286. The firm has $94 in inventory. What is the common-size statement value of inventory? 17.74 percent 32.87 percent 11.52 percent 8.17 percent 42.92 percent
Total assets = $530 + $286 = $816 Common-size value of inventory = $94 / $816 = 11.52 percent
Ziggs Corporation will pay a $3.90 per share dividend next year. The company pledges to increase its dividend by 5.00 percent per year, indefinitely. Required: If you require a 10.75 percent return on your investment, how much will you pay for the company's stock today?
Using the constant growth model, we find the price of the stock today is: P0 = D1 / (R - g) P0 = $3.90 / (0.1075 - 0.0500) P0 = $67.83
Cede & Co. can borrow at 10.50 percent. Cede currently has no debt, and the cost of equity is 17.00 percent. The current value of the firm is $658,000. The corporate tax rate is 38 percent. Required: What will the value be if Cede borrows $221,000 and uses the proceeds to repurchase shares?
VL = VU + TCD VL = $658,000 + 0.38($221,000) VL = $741,980
Phil's Carvings, Inc. wants to have a weighted average cost of capital of 8.3 percent. The firm has an aftertax cost of debt of 6.1 percent and a cost of equity of 12.2 percent. What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital? 0.89 1.77 0.56 2.77 1.56
WACC = 0.083 = 0.122WE + 0.061 × (1 - WE) 0.083 = 0.122WE + 0.061 - 0.061WE 0.061WE = 0.022 WE = 0.3607 WD = 1 - 0.3607 = 0.6393 D/E = 0.6393 / 0.3607 = 1.77
Lifeline, Inc., has sales of $597,000, costs of $261,000, depreciation expense of $65,000, interest expense of $32,000, and a tax rate of 35 percent. The firm paid out $42,000 in cash dividends and has 52,000 shares of common stock outstanding. Requirement 1: What are the earnings per share? Requirement 2: What are the dividends per share?
a. $597,000 - $261,000 - $65,000 = $271,000 $271,000 - $32,000 = $239,000 $239,000 x 39% = $83,650 $239,000 - $83,650 = $155,350 EPS = Net income / Shares outstanding EPS = $155,350 / 52,000 EPS = $2.99 per share b. DPS = Dividends / Shares outstanding = $42,000 / 52,000 = $0.81 per share
During the year, Belyk Paving Co. had sales of $2,382,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,443,000, $436,800, and $491,800, respectively. In addition, the company had an interest expense of $216,800 and a tax rate of 30 percent. (Ignore any tax loss carryback or carryforward provisions.) Required: (a) What is Belyk's net income? (b) What is Belyk's operating cash flow?
a. $2,382,000 - $1,443,000 - $436,800 - $491,800 = $10,400 $10,400,-$216,800 = -$206,400 b. OCF = EBIT + Depreciation - Taxes = $10,400 + 491,800 - 0 = $502,200
Here and Gone, Inc., has sales of $19.7 million, total assets of $14.7 million, and total debt of $5.5 million. Assume the profit margin is 10 percent. Requirement 1: What is net income? Requirement 2: What is ROA? Requirement 3: What is ROE?
a. Profit margin = Net income / Sales 0.10 = Net income / $19,700,000 Net income = $1,970,000 b. ROA = Net income / Total assets ROA = $1,970,000 / $14,700,000 ROA = 0.1340 or 13.40% c. ROE = Net income / (Total assets - Total debt) $1,970,000 / ($14,700,000 - 5,500,000) 0.2141 or 21.41%
Assume Mudvayne, Inc., has a 9.7 percent ROA and a 39 percent payout ratio. Required: What is the internal growth rate?
b = 1 - 0.39 b = 0.61 Internal growth rate = [(ROA)(b)] / [1 - (ROA)(b)] [0.097(0.61)] / [1 - 0.097(0.61)] 0.0629 or 6.29%
Assume the Crash Davis Driving School has a 15.1 percent ROE and a 50 percent payout ratio. Required: What is the sustainable growth rate?
b = 1 - 0.50 b = 0.50 Sustainable growth rate = [(ROE)(b)] / [1 - (ROE)(b)] [0.151(0.50)] / [1 - 0.151(0.50)] 0.0817 or 8.17%
Which one of the following is a capital structure decision? a. Determining the optimal inventory level b. Establishing the preferred debt-equity level c. Selecting new equipment to purchase d. Setting the terms of sale for credit sales e. Determining when suppliers should be paid
b. Establishing the preferred debt-equity level
The daily financial operations of a firm are primarily controlled by managing the: a. total debt level. b. working capital. c. capital structure. d. capital budget. e. long-term liabilities.
b. working capital.
The common stock of Eddie's Engines, Inc. sells for $44.18 a share. The stock is expected to pay $2.60 per share next year. Eddie's has established a pattern of increasing their dividends by 4.7 percent annually and expects to continue doing so. What is the market rate of return on this stock? 10.59 percent 5.89 percent 16.99 percent 13.24 percent 5.75 percent
r = $2.60 / $44.18 + 0.047 = 10.59 percent
Solve for the unknown number of years. Present value: $750; Interest rate: 9%; Future value: $1,605.
t = ln(FV / PV) / ln(1 + r) FV = $1,605 = $750 (1.09)t t = ln($1,605 / $750) / ln 1.09 t = 8.83 years
