Answers
Answer:
(a) The effective annual interest rate for a 3-month T-bill selling at $97,270 with par value $100,000 is 11.71%
(b) The effective annual interest rate for a 13% coupon bond selling at par and paying coupons semiannually is 13.42%
Explanation:
(a) A 3-month T-bill selling at $97,270 with par value $100,000
EAR =\([par value /price]^n-1}\)
n = 3 months or 12/3 = 4 times in a year
= \([100,000/97,270]^4 - 1\)
=\([1.028066]^4 -1\)
= 1.1171 - 1
= .1171 or 11.71%
b) EAR(coupon bond) = \([1+.13/2]^2 -1\)
=\([1+.065]^2 -1\)
= \([1.065]^2 -1\)
= 1.1342 - 1
= .1342 or 13.42%
Related Questions
Selected current year company information follows: Net income $ 16,753 Net sales 720,855 Total liabilities, beginning-year 91,932 Total liabilities, end-of-year 111,201 Total stockholders' equity, beginning-year 206,935 Total stockholders' equity, end-of-year 133,851 The total asset turnover is: (Do not round intermediate calculations.)
Answers
Answer:
the total asset turnover is 2.65 times
Explanation:
The computation of the total asset turnover is shown below;
As we know that
Total assets turnover is
= Net sales ÷ average of total assets
= $720,855 ÷ ($91,932 + $206,935 + $111,201 + $133,851) ÷ 2
= $720,855 ÷ $271,959.50
= 2.65 times
Hence, the total asset turnover is 2.65 times
Drag each label to the correct location.
A management team uses various budgeting methods as a central planning tool to coordinate activities in their organization
master budget
cash budget
administrative salaries
sources of cash
sources of expense
1 X
direct labor rates
no. of units sold and sales revenue
no. of units to be manufactured
cost of finished goods
Answers
Answer:A master budget is used to project the income and expenses of a company. ... The major components of a master budget include income and expenses, overhead and production costs, and the monthly, annual, average and projection totals.
Explanation:A master budget is a financial document that includes how much an organization plans to make and how much they plan to spend over a fiscal year, usually broken down into quarters or months. It may also include text explanations of how the budget can help the company reach its strategic goals.
A management team uses various budgeting methods as a central planning tool to coordinate activities in their organization through master budget. Read below about master budget.
What is a master budget?A master budget is a financial statement that incorporates the amount an organization plans to make and how much they plan to spend over a fiscal year, usually broken down into quarters or months.
Therefore, the correct answer is option A. master budget.
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A free enterprise system provides individuals the opportunity to make their own economic decisions, without restrictions from the government. It allows the supply and demand of consumers to determine the success or failure of an economic endeavor. As a result, some business owners have become successful, while others have not.
In an essay, you will choose an entrepreneur and argue whether the free enterprise system was necessary for that individual to make an impact on the business world.
Answers
The entrepreneur that is chosen for this argument is Steve Jobs. Steve Jobs was one of the co-founders of Apple, which is now a trillion-dollar company.
The free enterprise system was necessary for Steve Jobs to make an impact on the business world. Steve Jobs did not come from a wealthy background, but he had a passion for technology. The free enterprise system allowed him to start a business without any restrictions from the government.
He was able to create innovative products, such as the iPhone and iPad, and sell them to consumers. The supply and demand of consumers determined the success or failure of his business endeavors. Steve Jobs was able to create a successful company and become a billionaire because of the free enterprise system.
Without the free enterprise system, Steve Jobs may not have been able to start a successful business and make an impact on the business world.
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Given the figures below...
a. What geographical characteristics are common to states with the lowest energy usage per person?
b. Were there any temperatures above 80°F in the United States on the date shown in the contour map? If so, where?
Answers
a. States with the lowest energy usage per person in the United States often have mild climates and/or access to renewable energy sources. Specifically, they may have:
Lower average temperatures, reducing the need for heating and coolingAccess to renewable energy sources, such as hydroelectric or wind powerA smaller population density, leading to less energy consumption for transportation and infrastructureb. There was no state with temperatures above 80°F in the United States on the date shown in the contour map.
What is the energy usage about?States with low energy usage per person in the United States often have specific geographical characteristics and access to renewable energy sources. Here are some examples:
New York: New York has the fourth-lowest energy usage per person in the United States. The state has implemented energy efficiency policies, such as building codes and incentives for energy-efficient appliances. It also has access to hydroelectric power from the Niagara Falls.
Lastly, Vermont: Vermont has the second-lowest energy usage per person in the United States. Like Maine, Vermont's colder climate reduces the need for air conditioning. The state also has a high percentage of renewable energy sources, including hydroelectric power and solar energy.
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Ace Finance Company is a creditor beneficiary in a deal that involves Brad and Carol. Ace, like most creditor beneficiaries, is:_____.
a. a donee beneficiary.
b. an incidental beneficiary.
c. an intended beneficiary.
d. none of the above.
Answers
Answer: Intended beneficiary
Explanation:
An Intended Beneficiary simply means a third-party beneficiary. It is sometimes called a direct beneficiary as well. It should be noted that an intended beneficiary benefits from a contract based on what the two other parties mainly involved in the contract have agreed on.
In the scenario in the question, since Ace Finance Company is a creditor beneficiary in a deal that involves Brad and Carol. Ace, it means that Ace Finance Company is an intended beneficiary.
of 20 >
Which of the statements concerning retirement accounts is true?
A.)Since Roth IRAs are funded with post-tax dollars, they are never as attractive as pre-tax traditional IRAs.
B.)Contributions to personal retirement accounts remain the property of the individual or heirs, but Social Security
payments are transferred to others.
C.)Individuals can allocate the funds in IRAs, 401(k)s, Roth IRAs, and Social Security accounts according to their risk preferences.
D.)Individuals do not pay income tax on Social Security contributions, but there are no tax benefits tied to personal
retirement accounts.
Answers
B. Contributions to personal retirement accounts remain the property of the individual of heirs, but SS payments are transferred to others.
Contributions to personal retirement accounts remain the property of the individual or heirs, but Social Security payments are transferred to others. Thus, option B is correct.
What is retirement?Retirement can be termed as when a person leaves an active work life and takes the decision of not returning to work. people usually tend to take retirement at the age of 50 to 60. they may take full, partial, or temporary retirement.
Retirement accounts are basically created by people to have a saving, a tax-free income, and that act as social security.
If you have a retirement account, then the amount that is in the account remains with the account holder itself, but the amount of social security gets transferred to the others. Therefore, option B is the correct option.
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What is market environment
Answers
Answer:
The market environment is the combination of external and internal factors that affect a company's ability to establish a relationship with and serve its consumers.
Explanation:
The internal factors relate to the company itself, such as owners, workers, materials, components, etc.
The external factors are divided into macro and micro components. The macro component is the broad environment which includes societal forces that affect society as a whole. The micro component is task-related, which includes factors that influence the production, manufacturing and distribution of a product or service.
If a firm's marginal costs _____ then its _____. Group of answer choices rise; output increases fall; best-response curve shifts rise; forced out of the oligopoly fall; price falls
Answers
If a firm's marginal costs fall, then its price falls.
This is based on the principle that if the marginal cost of a product or firm rises, that implies that the firm is operating at a high fixed cost, thereby leading to an increase in the cost of production, which generally equates to products having a high price.
On the other hand, where there is low marginal cost, production costs reduce because the products are being produced at a lower fixed cost. Thereby leading to lower prices.
Hence, in this case, it is concluded that "If a firm's marginal costs fall, then its price falls."
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Amy, Becky, and Chau form a business entity with each contributing the following. Adjusted Basis Fair Market Value Amy: Cash $100,000 $100,000 Becky: Land $60,000 120,000 Chau: Services 50,000 Their ownership percentages will be as follows. Amy 40% Becky 40% Chau 20% Becky's land has a $20,000 mortgage that is assumed by the entity. Chau is an attorney who receives her ownership interest in exchange for legal services. Determine the recognized gain to the owners, the basis for their ownership interests, and the entity's basis for its assets under each entity scenario.
Answers
Most schools and businesses require some standard style of documentation for written reports. Discuss why that might be.
Answers
Answer:
The reason most schools and businesses require some form of standard formate is to be precise and clear for the reader. When filing government documents, they are formatted in certain ways for filing and researching all the important information.
Explanation:
What should you include on an income statement?
Select all correct answers.
1. income
2. expenses
3. net profit
4. all assets
Answers
All of the factors that have to be included in the income statement are:
1. income2. expenses3. net profitWhat is meant by the income statement?This is the term that is used to refer to the financial statement that would be made to show the revenue, the expenses and the profits that are made by a given company over a period of time. This is also called the earnings statement. It shows the revenue that is made from business.
Hence we can say that All of the factors that have to be included in the income statement are:
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Respond by (1) Identifying the type of syllogism below (Categorical, Disjunctive, Conditional) and (2) explain, in your own words, why the structure of the syllogism may be correct, but the conclusion could be false.
Major Premise: If the sidewalk is wet, then it must have just rained.
Minor Premise: The sidewalk is wet.
Conclusion: Therefore, it just rained.
Answers
The type of syllogism being used in the given sentence is a conditional syllogism.
What is Syllogism?This refers to the use of reasoning in order to draw conclusions about something based on two premises.
Hence, we can see that conditional syllogism was used in the given premises and this is because it made use of either-or to show that if the sidewalk was wet, then that means that it must have rained.
This reasoning is faulty because there are different possible reasons for the sidewalk to be wet and not just rainfall.
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The accountant for Mandarin Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:
Retained earnings balance at the beginning of the year $ 1,069,000
Net income for the year 355,000
Cash dividends declared for the year 67,000
Retained earnings balance at the end of the year 1,757,000
Cash dividends payable at the beginning of the year 15,000
Cash dividends payable at the end of the year 18,500
What is the amount of cash dividends paid that should be reported in the financing section of the statement of cash flows?
a) $100,500.
b) $3,500.
c) $63,500.
d) $70,500.
e) $67,000.
Answers
Answer:
C. $63,500
Explanation:
With regards to the above, information, the amount of cash dividends paid that should be recorded is computed as;
= Cash dividends payable at the beginning of the year + Cash dividends declared for the year - Cash dividends payable at the end of the year
= $15,000 + $67,000 - $18,500
= $63,500
Therefore, cash dividends paid that should be recorded in the financing section of the statement of cash flow is $63,500
Why does an informal proposal seem like a contradiction?
Answers
On the other hand, informal means casual or relaxed, lacking in formality or structure. Thus, an informal proposal may appear to be an oxymoron because a proposal is expected to be structured, precise, and professional to communicate its intended goals and objectives to its audience.
However, in some cases, an informal proposal may refer to a proposal that is less structured, less in-depth, or less formal. An informal proposal may be used to introduce an idea or concept before a more formal proposal is developed. An informal proposal can also refer to an internal proposal or a proposal made in an informal setting, such as a conversation between colleagues. In these cases, the proposal may be less formal in tone and structure but still convey the main idea or concept proposed.
You are planning to make monthly deposits of $90 into a retirement account that pays 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 19 years?
Answers
Answer:
$71,644.27
Explanation:
Future value of the deposit in 19 years = Monthly deposit * [(1 + interest rate/12)^12*No. of years - 1] / (interest rate/12
= $90 * [(1 + 10%/12)^12*19 - 1] / (10%/12)
= $90 * [6.63346333924 - 1] / 0.008333
= $90 * 6.63346333924/0.008333
= $90 * 796.0474
= $71644.269835
= $71,644.27
1. You are an adult employed in your favorite career. You earn
$15.00 per hour. Every hour over 40 per week, you earn
1.5 times your current rate. Based on the schedule listed
below, how much money did you earn last week
Answers
Assuming you worked 50 hours last week, the total amount of money that you earned based on the work rate described above, is $825.
When you work for 40 hours in a week, you are normally paid $15 for each of those hours. This means that out of the 50 hours you worked, the normal salary you made was:
= Number of hours in week x Amount per hour
= 40 x 15
= $600
The total amount of hours you worked over 40 was:
= 50 - 40
= 10 hours
For these 10 hours, you are paid 1.5 your normal rate of $15 per hour which means that you made:
= 10 x 15 x 1.5
= $225
The total you made was therefore:
= Normal salary x Amount earned for working over 40 hours
= 600 + 225
= $825
In conclusion, you earned $825 last week.
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what is your analysis on walmart financial health as of january 2021 compare to 2022
Answers
I think the analysis is good compared to the year of 2021
Vinny and Sandra have just had their first baby, and need to make a decision about how to handle work and child‑care responsibilities. Vinny earns $1000 per week working full time, and Sandra's full‑time salary is $1200 per week. They each can work part time and earn half their full‑time wage. Calculate the change in GDP for each situation, relative to when they both worked full time and had no child‑care responsibilities. If GDP falls, include a negative sign in your answer. a. Both Vinny and Sandra return to work full time and pay a child‑care provider $600 per week to care for their child. $ b. Both Vinny and Sandra will return to work full time, while Sandra’s mother takes care of their child without financial compensation. $ c. Both Vinny and Sandra will return to work full time, while Vinny's brother takes care of their baby. They'll pay him $600 a week to care for their child, but neither they nor Vinny’s brother will report those payments to the IRS, or on any government surveys. $ d. Vinny and Sandra will each return to work part time, and split child‑care responsibilities. $ e. Vinny will stay home to care for the baby, while Sandra returns to work full time. $
Answers
Answer:
A. 600
B. 0
C. 0
D. -1100
E. -1000
Explanation:
For part A you are asked to find the change in GDP with the addition of paying a babysitter $600. The GDP beforehand was the total income from both Vinny and Sandra which is $1200 + $1000 = $2200. For these questions, you are being asked to find a change in GDP which would simply be the addition of $600. Similiary, for part B there is no change in GDP because they do not pay Sandra's mother, so the change in GDP is 0. For part C, since the payments are not reported, there is no change in GDP. Part C can be thought of as a reference to the shadow market and GDP from the shadow market is not recorded. Part D has a negative 1100 because they each go back to work part-time, Vinnie earning $500 per week and Sandra earning $600. The change in GDP would be negative because they are losing 1100 in order to care for a new child. For part E, Vinnie gives up all his income which would normally amount to $1000 per week. The change in GDP is therefore negative.
The change in GDP for each situation will be:
(a) 600(b) 0(c) 0(d) -1100(e) -1000According to the question,
Whenever both work full time and had no child care then the b will be:
= \(1000+1200\)
= \(2200\)
(a)
New GDP,
= \(1000+1200+600\)
= \(2800\)
Change will be:
= \(2800-2200\)
= \(600\)
(b)
→ When mother doing child care isn't part of GDP then,
New GDP,
= \(1000+1200\)
= \(2200\)
Change will be:
= \(2200-2200\)
= \(0\)
(c)
→ Private non-reported transaction isn't a part of GDP then
New GDP,
= \(1000+1200\)
= \(2200\)
Change will be:
= \(2200-2200\)
= \(0\)
(d)
→ Working part time so will earn half of wages then,
New GDP,
= \(500+600\)
= \(1100\)
Change in GDP,
= \(1100-2200\)
= \(-1100\)
(e)
Only Sandra works then,
New GDP,
= \(1200\)
Change in GDP,
= \(1200-2200\)
= \(-1000\)
Thus the above answers are correct.
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discuss steeps involved in business planing process
Answers
Steps for business planning:
Step 1: Establish your mission. In essence, your mission statement explains why your business exists. ...
Step 2: Analyse your SWOT. ...
Step 3: Develop a plan. ...
Step 4: Create a budget. ...
Step 5: Put it in writing. ...
Step 6: Make it a living document.
Steps for planning
1] Recognizing Need for Action. ...
2] Setting Objectives. ...
3] Developing Premises. ...
4] Identifying Alternatives. ...
5] Examining Alternate Course of Action. ...
6] Selecting the Alternative. ...
7] Formulating Supporting Plan.
Which function of marketing stimulates sales, encourages customer loyalty, and communicates methods of payment?
Answers
One key function of marketing that stimulates sales, encourages customer loyalty, and communicates methods of payment is promotion.
Promotion is an integral part of the marketing mix and involves various activities aimed at creating awareness, generating interest, and influencing customers' purchasing decisions.
Through promotional strategies such as advertising, sales promotions, public relations, and direct marketing, businesses can effectively communicate the benefits and value of their products or services to the target audience. This creates a sense of urgency and drives sales by enticing customers to make a purchase.
Moreover, promotions can be designed to foster customer loyalty by offering exclusive discounts, rewards, or loyalty programs. These initiatives not only incentivize repeat purchases but also enhance the overall customer experience, fostering long-term relationships with the brand.
Additionally, promotions often include clear messaging about different methods of payment accepted by the business. By communicating convenient and flexible payment options, such as credit cards, online payments, or installment plans, customers feel empowered and informed about how to complete their transactions.
In summary, promotion plays a vital role in stimulating sales, cultivating customer loyalty, and effectively communicating methods of payment, thereby contributing to the overall success of a marketing strategy.
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Traditional marketing revolves around the 4 Ps:
Answers
Traditional marketing revolves around the 4 Ps, which are Product, Price, Place, and Promotion.
These elements form the foundation of a marketing strategy for businesses.
Product: Refers to the goods or services that a company offers to its customers. It involves defining the features, design, and quality of the product.
Price: Involves determining the cost of the product or service and finding the right pricing strategy that aligns with customer expectations and market conditions.
Place: Focuses on selecting the distribution channels and locations where the product will be available for customers to purchase. It includes decisions related to retail outlets, online platforms, or direct sales.
Promotion: Involves the activities undertaken to promote and create awareness about the product. It includes advertising, public relations, sales promotions, and other marketing communication strategies.
These 4 Ps provide a framework for businesses to analyze and optimize their marketing efforts to meet customer needs, increase sales, and achieve overall business objectives.
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a manufacturing firm is considering two locations for a plant to produce a new product. the two locations have fixed and variable costs as folls location FC(ANNUAL) VC(per unit) atlanta $80,000 $20 phoenix $140,000 $16 IF THE ANNUAL DEMAND WILL BE 20,000 units, what would be the cost advantage of the better location? HINT: compare the total costs a 60000 b 20000 c 460000 d 40000
Answers
Answer:
b $20,000
Explanation:
For computation of cost advantage first we need to find out the total cost of Atlanta and Phoenix which is shown below:-
Total cost = Fixed cost + (Variable cost × Number of units)
For Atlanta
The Total cost = $80,000 + ($20 × 20,000)
= $480,000
For Phoenix
The Total cost = $140,000 + ($16 × 20,000)
= $460,000
According to the above calculation, Phoenix is best location because it has lower total cost.
So
The Cost advantage at Phoenix = Total cost of Atlanta - Total cost of Phoenix
= $480,000 - $460,000
= $20,000
Job Search Challenge Card #1 Logic Puzzle
Answers
Suppose that, Jackson, a senior manager of a jewelry company, receives an e-mail from a competing company:
Galaxy: You have stolen our trademark. We have the trademark rights for the Hobgoblin Necklace and you don't have our
permission to use it. Yet, on a recent visit to one of your stores, you have Hobgoblin Necklaces for sale. Cease and desist
or we will turn this matter over to our attorney.
2
DO
Signed
Necklace Emporium
Jackson decides to fight the lawsuit brought by Galaxy. He hires Biggs to work on the case for $500 per hour. Biggs has other clients
but says he will dedicate a great deal of time to the case. Biggs is most likely which of the following types of lawyers?
Multiple Choice
MC
Graw
Hill
< Prex
of 5
BE
Next >
O
Answers
The type of lawyer that Briggs is a litigator.
Who is a litigator?This is a type of lawyer that is useful in all cases that involve civil cases. Such lawyers are the ones that represents their clients on such cases.
Briggs is a litigator due to the fact that he was hired to settle this dispute for the company.
He has been hired to represent this company in this lawsuit they have received.
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Assume that markup is based on cost. Find the dollar markup and percent markup on cost for the following. (Round your "Dollar markup" answer to the nearest cent and "Percent markup on cost" to the nearest hundredth percent.)
Cost Selling price Dollar markup Percent markup on cost
$14.80 $21.40
Answers
Answer and Explanation:
The computation of the dollar markup and the percent markup on cost is shown below;
The dollars markup is
= Selling price - cost price
= $21.40 - $14.80
= $6.60
ANd, the percent markup on cost is
= $6.60 ÷ $14.80 ×100
= 44.60%
(01.02 MC)
A musician composes short musical pieces for use in television commercials and in community festivals. There is a hometown anniversary celebration next month, and the
musician has been asked to compose an original song for the festivities. How might this affect this musician's production possibilities curve for new music?
O Production would decrease for both commercial and community music.
• Production would decrease for commercial music and increase for community music.
Production would increase for both commercial and community music.
O Production would increase for commercial music and decrease for community music.
Answers
Production would increase for commercial music and decrease for community music might this affect this musician's production possibilities curve for new music. Thus, option (d) is correct.
What is music?The term music refers to music relating to the musical. The music is producing the music. The use of musical instruments is the making of the tune. The music is mostly used in the sounds that are the basis of the movies and plays. The musical tunes entertain the people. The music was to entertain the people.
The PPF is a curve that is based on information from two variables that describe the distribution of resources between two things. A musician writes short musical compositions for television ads and community festivals. This musician's new music production possibilities curve upward for commercial music and downward for community music.
As a result, PPF curve was the based on the increase and decrease of the music.
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Which of these stores uses fulfillment center?
A) Comet Dry Cleaner
B) Dunkin’ Donuts
C) Amazon
D) 7-11
Answers
The store which uses the fulfillment center is Amazon.
The order fulfillment center is seen as the customer of packaging, receptacles, or of the sections of canisters which it employs to maintain, safeguard, and contain the products which it packages. So, Fulfillment by Amazon (FBA) is a service which tends to allow businesses in order to outsource order fulfillment to Amazon.
Here, there are several business which send products to Amazon fulfillment centers and when a customer makes a purchase, we pick, we pack, and then we ship the order. Thus, they also provide customer service and process returns for the orders placed.
Hence, option C is correct.
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I need help on my math Sixth grade math class can be difficult, even for students who have done well in math previously. In sixth grade you begin to learn more advanced topics such as ratios and rates. You also work more with fractions. ... Thus, it is important to succeed in math this year.
Answers
Ill give Brainliest to the one that awnsers
List 3 negative consequences of Chapter 7 and 13 Bankruptcy.
Answers
Answer:
As with any legal process, bankruptcy is a complex issue with both positive and negative consequences. Anyone considering filing for bankruptcy should consider all the possible outcomes before taking this step. Whether one is considering a Chapter 7 straight bankruptcy or a Chapter 13 repayment plan case, consulting with a qualified consumer bankruptcy attorney is paramount to ensuring that the process runs smoothly and advantageously.
The net income of Novis Corporation is $85,000. The company has 25,000 outstanding shares and a 100% payout policy. The expected value of the firm one year from now is $1,725,000. The appropriate discount rate for Novis is 12%, and the dividend tax rate is 0. What is the current value of the firm assuming the current dividend has not yet been paid? What is the ex-dividend price of Novis's stock if the board follows its current policy? At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing Novis's price. They proposed that Novis sell enough new shares to finance a $4.60 dividend. Comment on the claim that the low dividend is depressing the stock price. Support your argument with calculations. If the proposal is adopted, at what price will the new shares sell? How many will be sold?
Answers
The number of new shares sold will depend on how much Novis needs to raise to pay the proposed dividend of $4.60 per share. Current price and ex-dividend price are terms used in the context of stock dividends.
To find the current value of the firm, we can use the dividend discount model: Current value of the firm = (Net income / (1 - payout ratio)) / discount rate - expected value of the firm, where the payout ratio is 100% (as stated in the problem).
Plugging in the given values, we get:
Current value of the firm = ($85,000 / (1 - 1)) / 0.12 - $1,725,000 = -$625,000
This means that the current value of the firm is negative, which indicates that the company is not generating sufficient cash flows to meet its dividend obligations and grow the firm.
The ex-dividend price of Novis's stock can be calculated using the following formula:
Ex-dividend price = Current price - Dividend amount
Since the payout ratio is 100%, the dividend amount is equal to the net income per share, which is $85,000 / 25,000 = $3.40.
Assuming the current price of Novis's stock is positive, we can calculate the ex-dividend price:
Ex-dividend price = Current price - $3.40
The claim that the low dividend is depressing the stock price may or may not be true, depending on the investor's preferences. Some investors prefer high dividends, while others prefer companies that reinvest their earnings to grow the business. However, the proposal to sell new shares to finance a higher dividend is likely to be negative for the stock price. To see why, let's assume Novis sells x new shares at a price of p per share to raise enough funds to pay the proposed dividend of $4.60 per share. The amount raised will be xp, and the total dividend payment will be $4.60x. The new number of outstanding shares will be 25,000 + x, and the new dividend per share will be ($85,000 + $4.60x) / (25,000 + x). Assuming the expected value of the firm remains the same, we can use the dividend discount model to find the ex-rights stock price (i.e., the price of the stock after the new shares are issued):
Ex-rights stock price = (Net income + New dividend amount) / (1 - payout ratio) / Discount rate - Expected value of the firm
Plugging in the given values, we get:
p = (($85,000 + $4.60x) / (25,000 + x) + $85,000 / 25,000) / (1 - 1) / 0.12 - $1,725,000
Simplifying this expression, we get:
p = (0.012x + 45.4) / (25,000 + x) - $67.50
To maximize the stock price, Novis should aim to set p as high as possible. However, the price sensitivity of demand for new shares is likely to limit how high the price can be. Furthermore, the dilution of earnings resulting from the new shares is likely to put downward pressure on the stock price. In conclusion, the claim that the low dividend is depressing the stock price may or may not be true, depending on the investor's preferences. However, the proposed solution of selling new shares to finance a higher dividend is likely to be negative for the stock price, as it increases the number of outstanding shares and dilutes earnings per share. The price of the new shares will depend on the price sensitivity of demand, but it is likely to be lower than the current price of Novis's stock.
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