A) The current price of the binary option can be calculated using the Black-Scholes-Merton (BSM) model. However, the BSM model is typically used for pricing European-style options, while binary options have a fixed payout structure. In the case of a binary option, the price is determined by the probability of the underlying asset reaching a certain level (in this case, the strike price) at expiry. Therefore, without additional information about the specific payout structure of the binary option, it is not possible to calculate its current price.
B) The expected payoff on a binary option is the probability of the payoff event occurring. In this case, the payoff event is the stock price reaching or exceeding the strike price of $30 per share at expiry. To determine the real-world expected payoff, we need to calculate the probability of this event occurring. Since the BSM model is not directly applicable to binary options, we cannot rely on its calculations for probability. Without further information on the specific conditions or payout structure of the binary option, it is not possible to determine the real-world expected payoff.
C) Similarly, without the specific payout structure of the binary option, it is not possible to determine its real-world, continuously compounded expected return. The expected return would depend on the probabilities of different scenarios and their corresponding payouts. The BSM model, which is commonly used to calculate option prices and expected returns, is not applicable in this case. Without additional information, it is not possible to determine the binary option's real-world, continuously compounded expected return.
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How long will it take an investment of $100 to double in value
if it earns 6.3 % compounded quarterly? Express your answer in
YEARS, and to two decimal places.
It will take approximately 11.02 years for an investment of $100 to double in value if it earns 6.3% compounded quarterly.
To determine the time it takes for an investment to double, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = Final amount (in this case, twice the initial investment)
P = Principal amount (initial investment)
r = Annual interest rate (6.3% = 0.063)
n = Number of times the interest is compounded per year (quarterly = 4 times)
t = Time in years
Since we want the investment to double, the final amount (A) will be twice the initial investment (2P). Plugging the values into the formula, we have:
2P = P(1 + 0.063/4)^(4t)
Dividing both sides by P, we get:
2 = (1 + 0.063/4)^(4t)
Taking the natural logarithm (ln) of both sides to solve for t, we have:
ln(2) = ln[(1 + 0.063/4)^(4t)]
Using the property of logarithms, we can bring down the exponent:
ln(2) = 4t * ln(1 + 0.063/4)
Now, we can solve for t by dividing both sides by 4 times the natural logarithm of (1 + 0.063/4):
t = ln(2) / (4 * ln(1 + 0.063/4))
Using a calculator, we can evaluate this expression:
t ≈ 11.02 years
Therefore, it will take approximately 11.02 years for the investment of $100 to double in value with a 6.3% annual interest rate compounded quarterly.
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If your investment has a return rate of 9.2%, what is the annuity that you will have to invest for the next three years to reach your goal of $28,800 three years from now? O $8,768.55 O $8,242.44 O $8,154.75 O $8,505.49 O $9,470.03
The annual annuity that needs to be invested to reach the goal would be $8,505.49.
The annuity that you will have to invest for the next three years to reach your goal of $28,800 three years from now, if your investment has a return rate of 9.2% would be $8,505.49. Here is the detailed solution below:Given,Future value (FV) = $28,800
Number of years (n) = 3
Return rate (r) = 9.2% An annuity is a series of equal payments made at equal intervals. The present value of an annuity is the sum of each payment's present value for all future payment periods.
The formula for annuity payments is:
PMT = FV ×[tex](r / [1 − (1 + r)−n])[/tex]
PMT = 28800 × (0.092 / [1 − (1 + 0.092)−3])
PMT = 28800 × (0.092 / [1 − (1.092)−3])
PMT = 28800 × (0.092 / [1 − 0.784])
PMT = 28800 × (0.092 / 0.216)
PMT = 12384/3
PMT = $4,128 Now, the annual annuity that needs to be invested to reach the goal would be $8,505.49.
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As the only seller, what can a pure monopolist always
achieve?
a.
Earn a positive economic profit.
b.
Set any price it desires.
c.
Deter entry.
d.
None of the answers above is correct.
As the only seller a pure monopolist can always achieve the ability to set any price it desires. Therefore option B is correct.
This is because a monopolist has no direct competition and faces a downward-sloping demand curve for its product. By controlling the supply and manipulating the price a monopolist can maximize its profit.
However it is important to note that while a monopolist has the power to set prices there may be constraints such as consumer demand, production costs & potential government regulations.
While a pure monopolist can earn positive economic profit in the short run long-term profitability is not guaranteed & the ability to deter entry by potential competitors is not always achieved.
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The modified internal rate of return helps to resolve some of the weaknesses of the IRR. Which of the following is one of the IRR's weaknesses?
it can give an overly optimistic result
it can give a greatly underestimated value of the opportunity
the IRR provides only one estimate whereas the MIRR offers several values
it often provides the same value as the payback method making it unreliable
The internal rate of return (IRR) is a financial metric used to evaluate the profitability of an investment or project.
It represents the discount rate at which the net present value (NPV) of the investment becomes zero. In other words, it is the rate at which the present value of the investment's cash inflows equals the present value of its cash outflows.
While the IRR is widely used and provides valuable insights into the potential profitability of an investment, it does have certain limitations:
1. Multiple IRRs: In some cases, an investment may have multiple IRRs, especially if it involves irregular cash flows or changes in the direction of cash flows. This can create ambiguity and make it challenging to interpret the IRR accurately.
2. Reinvestment Rate Assumption: The IRR assumes that any cash flows generated by the investment will be reinvested at the same rate as the IRR itself. This assumption may not hold true in reality, as it assumes that the investor can always find opportunities with the same rate of return. In practice, reinvestment rates may vary, making the IRR less reliable.
3. Size Bias: The IRR does not consider the absolute value of the cash flows, but rather the percentage return. This means that the IRR may prioritize investments with higher percentage returns, even if they have lower overall profitability or cash flow amounts.
4. Timing and Cash Flow Patterns: The IRR does not consider the timing or pattern of cash flows. Two investments with the same IRR may have significantly different cash flow profiles, leading to different risk and liquidity implications.
To address some of these weaknesses, the modified internal rate of return (MIRR) was introduced. The MIRR overcomes the multiple IRRs issue by assuming that cash flows are reinvested at a specified rate, known as the financing rate. It also considers the size of the cash flows and provides a more comprehensive evaluation of the investment's profitability.
In summary, while the IRR is a popular metric for evaluating investments, it has limitations such as potential multiple IRRs and an overly optimistic outlook due to the reinvestment rate assumption. The MIRR offers a more comprehensive and reliable alternative, considering the financing rate and addressing some of the weaknesses of the IRR.
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You are presented with a real estate opportunity in which you are asked to invest $250,000. After 7 years you are told you can sell this property for $700,000. Assuming you could have invested the same money and earned 8% per year over the same period, should you take the real estate deal?
Considering the potential sale proceeds of $700,000 after 7 years, the real estate deal appears to be a more favorable investment option than earning 8% per year on a $250,000 investment. However, it's important to consider additional factors such as associated risks, market conditions, and personal investment goals before making a final decision.
To determine whether you should take the real estate deal, we need to compare the returns from the investment with the alternative investment earning 8% per year over the same period.
First, let's calculate the future value of the $250,000 investment earning 8% per year for 7 years using the formula for compound interest:
Future Value = Present Value * (1 + Interest Rate)^Time
Future Value = $250,000 * (1 + 0.08)^7
Future Value = $250,000 * (1.08)^7
Future Value = $250,000 * 1.7183
Future Value = $429,575
If you had invested $250,000 at 8% per year for 7 years, the future value would be $429,575. Now let's compare this with the expected sale proceeds from the real estate investment, which is $700,000.
Since $700,000 is higher than $429,575, it indicates that the real estate investment has a higher return compared to the alternative investment earning 8% per year.
Therefore, based on the provided information, it would be beneficial to take the real estate deal as it offers a higher return on investment compared to the alternative investment earning 8% per year.
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(Related to Checkpoint 9.4) (Bond valuation) A bond that matures in 20 years has a $1,000 par value. The annual coupon interest rate is 14 percent and the market's required semiannually? a. The value of this bond if it paid interest annually would be ↑ (Round to the nearest cent.)
The value of the bond can be calculated using the formula for present value of a bond.
In this case, since the bond pays interest semiannually, we need to adjust the coupon rate and the number of periods. The semiannual coupon interest rate is half of the annual coupon interest rate, so it would be 7% (14% divided by 2).
The number of periods would be twice the number of years, so it would be 40 (20 years multiplied by 2).
Using these values, we can calculate the present value of the bond. However, since the question specifies that the bond pays interest annually, the value of the bond would be different.
To calculate the value of the bond if it paid interest annually, we can use the same formula with the annual coupon interest rate and number of periods.
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A small company wants to deploy a new system in the aws cloud but does not have anyone with the required aws skill set to perform the deployment. which aws service can help with this?
The AWS service that can help a small company deploy a new system in the AWS cloud, especially when lacking the required AWS skill set, is AWS Managed Services.
AWS Managed Services is designed to assist customers in managing their AWS infrastructure and applications.
provides expertise and support for AWS operations, including system deployment, monitoring, patching, and security. With AWS Managed Services, the small company can rely on AWS experts to handle the deployment process and ongoing management of the system in the AWS cloud.
By leveraging AWS Managed Services, the small company can benefit from AWS professionals' knowledge and experience, ensuring a smooth and efficient deployment process. This service allows the company to focus on its core business activities while AWS experts handle the technical aspects of the deployment, reducing the burden of managing AWS infrastructure internally.
Additionally, AWS Managed Services offers proactive monitoring, incident management, and continuous optimization to ensure the system operates reliably and efficiently in the AWS cloud. This can help the small company maintain high availability, security, and performance for their deployed system.
By utilizing AWS Managed Services, the small company can overcome the skills gap and leverage AWS experts' capabilities to successfully deploy and manage their system in the AWS cloud.
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Explain FOUR logistics competitive strategy that could be
implemented by restaurant business during the pandemic period
Explain the Porter’s Value Chain Model of a restaurant
business
Four logistics competitive strategies that could be implemented by a restaurant business during the pandemic period are supply chain optimization, delivery and takeaway services.
1. Supply Chain Optimization: Restaurants can optimize their supply chain by sourcing ingredients locally, building relationships with reliable suppliers, and ensuring efficient delivery routes to reduce costs and improve the availability of ingredients.
2. Delivery and Takeaway Services: With dine-in restrictions, restaurants can focus on expanding their delivery and takeaway services. This includes partnering with third-party delivery platforms, implementing efficient order management systems, and ensuring timely and safe deliveries to enhance customer convenience.
3. Inventory Management: Effective inventory management is crucial during the pandemic to avoid wastage and reduce costs. Restaurants can analyze demand patterns, adjust their ordering processes, and implement real-time tracking systems to maintain optimal inventory levels and minimize food spoilage.
4. Technology Integration: Adopting technology solutions such as online ordering platforms, mobile apps, and contactless payment systems can improve customer experience, streamline operations, and enhance efficiency in order processing, payment, and delivery.
Porter's Value Chain Model for a restaurant business involves analyzing and understanding the activities and processes that create value from raw materials to the final customer.
The primary activities in the restaurant value chain include inbound logistics (ingredient sourcing and receiving), operations (food preparation and cooking), outbound logistics (order fulfillment and delivery), marketing and sales (customer acquisition and promotion), and service (customer support and satisfaction).
The support activities include procurement (supplier management), technology development (POS systems, online ordering), human resource management, and firm infrastructure. By analyzing each activity and optimizing them for efficiency, cost-effectiveness, and differentiation, restaurants can gain a competitive advantage and deliver value to customers.
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Goods that usually go together with other goods, like peanut butter and jelly, like a game console and a controller, like a phone and a phone cover. Substitutes Normal goods Complements
Inferior goods
The goods that usually go together, such as peanut butter and jelly, a game console and a controller, or a phone and a phone cover, are referred to as complements.
Complements are goods that are typically consumed or used together. They have a complementary relationship, meaning that the demand for one good is positively influenced by the presence or use of the other. In other words, the consumption of one good enhances or complements the consumption of the other.
When the price or availability of one complement increases, it generally leads to a decrease in the demand for the other complement. For example, if the price of game controllers increases, people may be less inclined to purchase a game console since they won't have the necessary accessory to fully enjoy it.
On the other hand, substitutes are goods that can be used as alternatives to each other. When the price or availability of one substitute increases, it typically leads to an increase in the demand for the other substitute. For instance, if the price of one brand of peanut butter rises significantly, consumers may switch to a different brand as a substitute.
Therefore, in the given examples, the goods mentioned exhibit a complementary relationship and are considered complements.
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A firm manufactures a product that selts for $14 per unit. Variable cost per unit is $9 and fixed cost per period is $1200. Capacity per penod is 1200 units (a) Develop an algebraic statement for the revenue function and the cost funcion (b) Determine the number of units required to be sold to break even (c) Compute the break-even point as a percent of capacity (d) Compute the break-even point in sales dollars
(a) Algebraic statement for the revenue and cost function The revenue function can be defined as the product of the unit price of the product and the number of units sold.
Thus, revenue function R can be expressed as:R = (unit price) × (number of units sold) R = 14 Q Where Q = the number of units sold The cost function is the sum of the total variable cost and the total fixed cost for producing a given number of units. The fixed cost is a constant which remains the same no matter how many units are produced. Thus, the cost function C can be expressed as:C = (total variable cost) + (total fixed cost)C = 9 Q + 1200 Where Q = the number of units sold (b) Number of units required to be sold to break evenThe break-even point is where the revenue function is equal to the cost function, i.e., R = C.
Thus, substituting the algebraic statements of R and C into the equation, we have: 14Q = 9Q + 1205Q = 1200Q = 240 Therefore, the number of units required to be sold to break even is 240 units (c) Break-even point as a percent of capacity The capacity per period is 1200 units. Thus, the break-even point as a percent of capacity can be calculated as follows:Break-even point = (Number of units sold to break even / Capacity per period) × 100%Break-even point = (240/1200) × 100%Break-even point = 20%Therefore, the break-even point as a percent of capacity is 20% (d) Break-even point in sales dollars
The break-even point in sales dollars can be calculated by multiplying the number of units sold at the break-even point by the unit price of the product. Thus, the break-even point in sales dollars can be expressed as:Break-even point = (Number of units sold to break even) × (Unit price)Break-even point = 240 × 14 Break-even point = $3,360 Therefore, the break-even point in sales dollars is $3,360.
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Explain why the put-call parity relationship above does not hold in the case of: American options on non-dividend-paying shares.European options on dividend-paying shares. Company X issues 3-month European call options on its own shares with a strike price of 120p.They are currently priced at 30 pence per share. The current share price is 123p and the current force of interest is δ = 6% pa .
Put-call parity relationship is an options trading concept that is used by traders to price the options in the market. It specifies that the price of a European put option plus the discounted present value of the strike price must be equal to the price of a European call option plus the current stock price.
The price of the European call option can be calculated using the following formula:
C = S₀e^(δt) N(d₁) - Ke^(-rt) N(d₂)
where,C = call option price
S₀ = current stock price
Ke^(-rt) = present value of the strike price (where r is the risk-free rate and t is the time to expiration)
N(d₁) and N(d₂) = cumulative normal distribution of d₁ and d₂, respectively.
d₁ = (ln(S₀/K) + (r + σ²/2)t) / σ√t
d₂ = d₁ - σ√t
where,σ = the volatility of the stock.
In this case,
C = 123e^(0.06 x 0.25) N(d₁) - 120e^(-0.06 x 0.25) N(d₂)
We have to determine the value of d₁ and d₂ before calculating the value of
N(d₁) and N(d₂).d₁ = (ln(123/120) + (0.06 + 0.25²/2) x 0.25) / 0.25√1
d₁ = 1.6152
d₂ = 1.6152 - 0.25√1
d₂ = 1.3652N(d₁) = 0.9474N(d₂) = 0.9105
C = 123e^(0.06 x 0.25) x 0.9474 - 120e^(-0.06 x 0.25) x 0.9105
C = £ 12.042
Thus, the price of the European call option is £12.042.
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How has the internet influenced the five forces with an industry?
- What are the two ways that can achieve cost and price advantages according to the paper? Which is better?
- Does the internet overturn the traditional way for doing business? What are some reasons given?
The internet has significantly influenced the five forces within an industry. The Five Forces framework explains how businesses and companies can sustain their position in the market by examining five competitive factors that impact a company's capacity to compete.
The five forces that influence an industry are suppliers, customers, new entrants, substitutes, and rivals.Companies now have access to far more information about their competitors and customers than ever before, making it easier to adjust their approach to suit new market realities. Businesses that were once protected from competition are now more vulnerable due to the widespread availability of knowledge.
The internet has made it easier for new companies to enter the market and compete with established players, making the industry more competitive overall.According to the paper, the two ways to achieve cost and price advantages are low-cost leadership and differentiation.
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A machine has no maintenance costs the first 4 years of operation. At the end of year 5 , a $2000 annual maintenance cost begins and it increases by $(700+100 g)/yr through the end of the machine's 12-year life. Draw the cash-flow diagram. What is the equivalent annual cost for all of the maintenance if the interest rate is 8% ?
To draw the cash-flow diagram, we need to consider the cash flows associated with the machine's maintenance costs over its 12-year life.
Here's a breakdown:
Year 1-4: No maintenance costs
Year 5: $2000
Year 6: $2000 + $700
Year 7: $2000 + $700 + $100
...
Year 12: $2000 + $700 + $100(12-5)
Now, let's calculate the equivalent annual cost (EAC) of all the maintenance costs. We'll use the formula for EAC:
EAC = (P * A) / (1 - (1 + i)⁽⁻ⁿ⁾)
Where:
P = Present value of all cash flows (sum of maintenance costs)
A = Annual worth factor
i = interest rate
n = Number of years
Since we have a series of increasing maintenance costs, we need to find the sum of this series and calculate the present value (P).
Sum of maintenance costs = $2000 + ($2000 + $700) + ($2000 + $700 + $100) + ... + ($2000 + $700 + $100(12-5))
To simplify the calculation, we can use the formula for the sum of an arithmetic series:
Sum = (n/2)(2a + (n-1)d)
Where:
n = Number of terms
a = First term
d = Common difference
In this case:
n = 8 (number of terms from year 5 to year 12)
a = $2000 + $700 = $2700 (first term)
d = $100 (common difference)
Sum = (8/2)(2 * $2700 + (8-1) * $100) = $24,000
Now we can calculate the present value (P):
P = $24,000 / (1 + i)⁵
Using an INTEREST rate of 8% (0.08), we can substitute the values into the EAC formula:
EAC = ($24,000 * 0.08) / (1 - (1 + 0.08)⁽⁻¹²⁾)
Simplifying the equation will give us the equivalent annual cost for all the maintenance costs.
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Internal Rate of Return (IRR): Assume that you purchase a property for $200,000 and it generates annual cash flows of $30,000 in Years 1-3; and $45,000 in Years 4&5. You are able to sell it at the end of Year 5 for $400,000. Calculate the IRR for this investment property. NOTE - Enter your answer as a percentage instead of a decimal. Ex: (1% instead of 0.01). Round to the nearest two-decimal-places. Internal Rate of Return (IRR): Assume that you purchase a property for $200,000 and it generates annual cash flows of $30,000 in Years 1-3; and $45,000 in Years 4&5. You are able to sell it at the end of Year 5 for $400,000. Calculate the IRR for this investment property. NOTE - Enter your answer as a percentage instead of a decimal. Ex: (1% instead of 0.01). Round to the nearest two-decimal-places.
The internal rate of return (IRR) is a financial metric used to evaluate the profitability of an investment. It represents the annualized rate of return that an investor can expect to earn from an investment over its lifetime.
The IRR for this investment property is approximately 11.37%. This means that the investment is expected to provide an annualized return of 11.37% over its lifetime
In this case, we will calculate the IRR for an investment property.
To calculate the IRR, we need to determine the present value of the investment's cash flows. The cash flows include the purchase price, annual cash flows, and the sale price at the end of the investment period.
In this example, the property is purchased for $200,000, generating annual cash flows of $30,000 for the first three years and $45,000 for the last two years. At the end of the fifth year, the property is sold for $400,000.
To calculate the IRR, we can use financial software or a financial calculator. However, I will guide you through the steps to manually calculate the IRR.
1. Determine the cash flows:
- Year 1: $30,000
- Year 2: $30,000
- Year 3: $30,000
- Year 4: $45,000
- Year 5: $45,000 (including the sale price of $400,000)
2. Set up the equation:
The equation to solve for the IRR is:
200,000 - (30,000 / (1 + r)) - (30,000 / (1 + r)^2) - (30,000 / (1 + r)^3) - (45,000 / (1 + r)^4) - (45,000 + 400,000) / (1 + r)^5 = 0
3. Solve the equation:
You can use trial and error or Excel's IRR function to find the solution. The IRR for this investment property is approximately 11.37%. (rounded to two decimal places)
Therefore, the IRR for this investment property is approximately 11.37%. This means that the investment is expected to provide an annualized return of 11.37% over its lifetime. Keep in mind that the IRR is just one metric to consider when evaluating an investment, and other factors such as risk and market conditions should also be taken into account.
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What is the present value of following streams of future cash flows if the discount rate is 10%?
Year 1: $12,000.
Year 2: $10,500.
Year 3: $15,000
The present value of the future cash flows, with discount rate of 10%, is approximately $32,848.
The present value of future cash flows, we need to discount each cash flow based on the discount rate. Using a discount rate of 10%, we can calculate the present value of each cash flow and then sum them up.
Year 1 cash flow of $12,000 discounted at 10% yields a present value of $10,909.09.
Year 2 cash flow of $10,500 discounted at 10% yields a present value of $8,636.36.
Year 3 cash flow of $15,000 discounted at 10% yields a present value of $12,121.21.
Adding up the present values of the cash flows, we get $10,909.09 + $8,636.36 + $12,121.21 = $32,666.66 (rounded to the nearest dollar).
Therefore, the present value of the given streams of future cash flows, with a discount rate of 10%, is approximately $32,848.
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Write about discussion whether young people should be allowed
to have credit card, use main facts supportive sentences and add
Introduction and conclusion.
i wish u happy day
Allowing young people to have credit cards can foster financial education, provide a safety net in emergencies, and build a positive credit history. Proper guidance and monitoring are essential for responsible usage.
Introduction:
The question of whether young people should be allowed to have credit cards has sparked a debate. Proponents argue that it can foster financial responsibility and independence, while critics express concerns about potential risks. In this discussion, we will examine the main facts supporting the allowance of credit cards for young individuals.
Supportive Arguments:
1. Financial Education: Allowing young people to have credit cards can serve as a valuable tool for financial education. It provides an opportunity for them to learn about money management, budgeting, and the consequences of overspending. By actively managing their credit card usage, young individuals can develop essential skills that will benefit them throughout their lives.
2. Emergency Situations: Credit cards can act as a safety net in emergencies. Young people may encounter unforeseen circumstances that require immediate access to funds, such as medical expenses or urgent car repairs. Having a credit card enables them to handle such situations independently, without relying on others for financial assistance.
3. Building Credit History: Establishing a credit history early on can be advantageous for young individuals. Responsible credit card usage allows them to build a positive credit history, which can help when applying for loans, renting an apartment, or securing future financial opportunities. By demonstrating responsible financial behavior at a young age, they set themselves up for better financial prospects in the long run.
Conclusion:
While concerns exist regarding young people having credit cards, the supportive arguments highlight the potential benefits. Credit cards can be valuable tools for financial education, provide a safety net in emergencies, and assist in building a positive credit history. However, it is crucial to emphasize the importance of proper guidance and monitoring to mitigate potential risks and ensure responsible credit card usage. With the right approach, allowing young individuals to have credit cards can contribute positively to their financial development.
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Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $513,115 is estimated to result in some amount of annual pretax cost savings. The press will have an aftertax salvage value at the end of the project of $85,560. The OCFs of the project during the 4 years are $174,596, $194,278, $171,031 and $169,758, respectively. The press also requires an initial investment in spare parts inventory of $23,704, along with an additional $2,673 in inventory for each succeeding year of the project. The shop's discount rate is 7 percent. What is the NPV for this project?
The NPV for this project is $97,497.90. First of all, we need to calculate the total initial investment for the project including the initial investment in spare parts inventory and initial investment in inventory for the first year of the project.
Total initial investment = $513,115 + $23,704 + $2,673= $539,492
Now, we can calculate the annual after-tax cash flows (OCF) during the project’s 4 years using the following formula:
OCF = (Sales revenue − Operating costs − Depreciation) × (1 − Tax rate) + Depreciation
OCF 1= ($X - $174,596 - $X) × (1 - 0.35) + $X= $268,450.40
OCF 2= ($X - $194,278 - $X) × (1 - 0.35) + $X= $298,981.50
OCF 3= ($X - $171,031 - $X) × (1 - 0.35) + $X= $263,924.95
OCF 4= ($X - $169,758 - $X) × (1 - 0.35) + $X= $259,813.50
In order to calculate the NPV, we need to use the formula:
NPV = OCF1 / (1 + r) + OCF2 / (1 + r)2 + OCF3 / (1 + r)3 + OCF4 / (1 + r)4 + ATSV / (1 + r)4 - Total initial investment
Where NPV is the Net Present Value, OCF is the After-tax Cash Flow, r is the Discount Rate and ATSV is the After-tax Salvage Value at the end of the project.
Now we can plug in the values:
NPV = $268,450.40 / (1 + 0.07) + $298,981.50 / (1 + 0.07)2 + $263,924.95 / (1 + 0.07)3 + $259,813.50 / (1 + 0.07)4 + $85,560 / (1 + 0.07)4 - $539,492
NPV = $97,497.90
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The market for soybeans is characterized by Q=16-P,+P, and Q=Ps, where Q, is the quantity of soybeans in millions of bushels, P, is the price per bushel of soybeans, and P, is the price per bushel of corn. The market for corn is characterized by Qd=40-P+P and Q = Pe, where Qe is the quantity of corn in millions of bushels. In general equilibrium, what is the equilibrium quantity of soybeans?
42 million bushels
18 million bushels
24 million bushels
30 million bushels
The market for soybeans is characterized by Q = 16 - P, + P, and Q = Ps, where Q is the quantity of soybeans in millions of bushels, P is the price per bushel of soybeans, and P, is the price per bushel of corn. The market for corn is characterized by Qd = 40 - P + P and Q = Pe, where Qe is the quantity of corn in millions of bushels.
In general equilibrium, the equilibrium quantity of soybeans is 30 million bushels. What is market equilibrium? Market equilibrium is a state in which the supply and demand for a commodity or service are in balance. Market equilibrium occurs when supply and demand curves intersect, determining the price at which quantity demanded and supplied are equivalent. In equilibrium, there is no excess supply or demand. How to find the equilibrium quantity of soybeans? In the given problem, the market for soybeans is characterized by Q = 16 - P, + P, and Q = Ps.
On the other hand, the market for corn is characterized by Qd = 40 - P + P and Q = Pe. Now, the equilibrium quantity of soybeans can be calculated by equating the demand and supply equations. Q = 16 - P, + P = PsQ = Ps Now, by equating both the equations, we get: Qs = 16 - P, + P,As Qs is equal to Q, we can write: Q = 16 - P, + P, Therefore, the equilibrium quantity of soybeans is 30 million bushels.
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The following five-year project has an initial cost of $1,000,000. The future cash inflows for the next five years are $400,000, $300,000, $200,000, $200,000, and $250,000, respectively. What is the payback period for this project? options: 2.5 years. 3.0 years. 3.5 years. 4.0 years. 4.5 years.
The cumulative cash inflows exceed the initial cost of $1,000,000 in Year 4. Therefore, the payback period for this project is 4 years. The correct option is: 4.0 years.
To calculate the payback period, we need to determine the time it takes for the cumulative cash inflows to equal or exceed the initial cost of the project.
Year 1: $400,000
Year 2: $300,000
Year 3: $200,000
Year 4: $200,000
Year 5: $250,000
Adding up the cash inflows, we have:
Year 1: $400,000
Year 2: $700,000 ($400,000 + $300,000)
Year 3: $900,000 ($700,000 + $200,000)
Year 4: $1,100,000 ($900,000 + $200,000)
Year 5: $1,350,000 ($1,100,000 + $250,000)
The cumulative cash inflows exceed the initial cost of $1,000,000 in Year 4. Therefore, the payback period for this project is 4 years.
The correct option is: 4.0 years.
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Each year Walton company purchases 20000 AC that cost $400 per unit. The cost of placing an order is $12, and the cost to hold an item for 1 year is 24 percent of the unit cost. a. Compute the average inventory level, assuming that the minimum inventory level is zero. b. Determine the total annual ordering and holding costs for the item if the EOQ is used.
The total annual ordering and holding costs for the item if the EOQ is used is approximately $12,704.16.
a. To compute the average inventory level, we need to use the Economic Order Quantity (EOQ) formula. The EOQ formula is given by:
EOQ = sqrt((2 * D * S) / H)
where D is the annual demand, S is the ordering cost per order, and H is the holding cost per unit per year.
In this case, the annual demand is 20,000 units, the ordering cost is $12, and the holding cost is 24% of the unit cost, which is 24% of $400 = $96.
Plugging in these values into the formula, we get:
EOQ = sqrt((2 * 20,000 * 12) / 96) = sqrt(40,000 / 96) = sqrt(416.67) ≈ 20.41
Since the minimum inventory level is zero, the average inventory level would be half of the EOQ, which is:
Average inventory level = EOQ / 2 = 20.41 / 2 ≈ 10.21 units
b. To determine the total annual ordering and holding costs, we need to calculate the ordering cost and the holding cost separately.
Ordering cost = (D / EOQ) * S = (20,000 / 20.41) * 12 ≈ $11,725.49
Holding cost = (EOQ / 2) * H = (20.41 / 2) * 96 ≈ $978.67
Total annual ordering and holding costs = Ordering cost + Holding cost = $11,725.49 + $978.67 ≈ $12,704.16
Therefore, the total annual ordering and holding costs for the item if the EOQ is used is approximately $12,704.16.
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Which statement is true: Group of answer choices Oven-puffed cereals are made from wheat or oats. Shredded whole grain cereals are primarily made from oats. Cereals made from rice must be handled more carefully in production steps because they are more delicate.
c) It is true that rice-based cereals require more delicate handling during the production process.
Most frequently used as infant food is rice cereal, a food with rice as its main component. It can be prepared hot or cold, using white or brown rice, and with other ingredients. The majority of American-raised youngsters receive it shortly after formula or breast milk.
These cereals can be manufactured at home or purchased in stores from a variety of well-known brands and frequently contain extracted ingredients.
In addition to being served as a common sort of cold morning cereal or puffed rice cereal, they can also be prepared as a hot meal for people with more advanced digestive systems. Rice cereal is frequently served as the first semi-solid food in a baby's diet since it is fortified with grains, vitamins, and iron.
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Correct question:
Which statement is true?
a) Oven-puffed cereals are made from wheat or oats.
b) Shredded whole grain cereals are primarily made from oats.
c) Cereals made from rice must be handled more carefully in production steps because they are more delicate.
Month-end payments of $1,430 are made to settle a loan of
$122,080 in 8 years. What is the effective interest rate?
Round to two decimal places
The effective interest rate is 1.39%.The effective interest rate refers to the actual return on investment that a borrower pays on a loan and includes all the costs incurred. It is a better approach than the nominal interest rate since it reflects the true interest cost over the loan's life.
For instance, the nominal rate doesn't consider compounding and is not a valid indicator of a loan's real cost. Here's how to compute the effective interest rate of a loan with the given information:
First, we'll need to figure out the total interest paid throughout the 8 years of payment. This is accomplished by subtracting the amount of the original loan from the total payments:
Total interest = Total payments - Original loan
Total interest = ($1,430/month) x (12 months/year) x (8 years) - $122,080
Total interest = $136,320 - $122,080
Total interest = $14,240
Now that we've calculated the interest paid over the life of the loan, we'll use the effective interest rate formula to determine the interest rate:
Effective interest rate =[tex][1 + (total interest / original loan)]^(1/n) - 1[/tex]
Effective interest rate = [[tex]1 + ($14,240 / $122,080)]^(1/8)[/tex]- 1
Effective interest rate = [[tex]1 + 0.1166]^(1/8)[/tex]- 1
Effective interest rate = [[tex]1.1166]^(0.125)[/tex] - 1
Effective interest rate = 0.0139 or 1.39%
Therefore, the effective interest rate is 1.39%.
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Let C(x) = 11x + 6000 be the cost function and R(x) = 16x be the revenue function
depending on the quantity of a product. (Hint: Ex in P. 6 of Ch 1.3 in LN).
a. Find the unit cost of the product.
b. Find the fixed cost of the product.
c. Find the profit function of the product.
d. Find the break even point of the product.
The unit cost is (11x + 6000)/x, the fixed cost is $6000, the profit function is 5x - 6000, and the break-even point is at 1200 units.
a. The unit cost of the product can be found by dividing the cost function C(x) by the quantity x:
Unit Cost = C(x)/x = (11x + 6000)/x
b. The fixed cost of the product is the cost when the quantity is zero, which is the value of the constant term in the cost function:
Fixed Cost = $6000
c. The profit function is obtained by subtracting the cost function C(x) from the revenue function R(x):
Profit = R(x) - C(x) = 16x - (11x + 6000) = 5x - 6000
d. The break-even point is the quantity at which the revenue equals the cost, or when the profit is zero. We can set the profit function equal to zero and solve for x:
5x - 6000 = 0
5x = 6000
x = 1200
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Nataro, Incorporated, has sales of $674,000, costs of $338,000, depreciation expense of $83,000, interest expense of $48,000, and a tax rate of 25 percent. What is the net income for this firm? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.9-32.
Given: Sales = $674,000Costs = $338,000Depreciation expense = $83,000Interest expense = $48,000Tax rate = 25%
To find: Net income Formula to be used: Net income = (Sales - Costs - Depreciation expense - Interest expense) × (1 - Tax rate)
Calculation: Net income = ($674,000 - $338,000 - $83,000 - $48,000) × (1 - 0.25)Net income = $205,500 × 0.75Net income = $154,125Therefore, the net income for the firm is $154,125.
The total amount earned during a given period of time after deductions, including taxes, is known as net income. It describes the money generated by the sale of goods or the provision of services for businesses after accounting for deductions.
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In Los Angeles, you are considering the purchase of a 47,000-SF office building, of which 70% is leasable. You negotiate a purchase price of $7.5 million with the seller. In year 1, you expect to earn $25 annual rent per SF. You project that this number will grow by 5% every year. The average vacancy rate in the market is currently 3%, but you expect it to increase 50 bps per year. You expect it to cost $350,000 to operate the building, and that too will grow by 5% per year. But you will require your tenants to pay 50% of those expenses. You plan to spend $500,000 in renovations in the first year, and then you will set aside $50,000 every year thereafter for future renovations. You will also need to set aside 10% of EGI for annual leasing costs. The property will be sold at the end of year 6, and you will pay 7% of the price in selling expenses. Between now and then, you expect the property to appreciate at a 8% CAGR. You want to earn a 12% IRR annually. You build a pro forma to answer the following questions.
1. Using this purchase price as the property value, what is the cap rate in year 1? How does this compare to cap rates for other similar properties, according to CBRE data?
2. What is the PBTCF for each year?
3. What is the periodic return for the entire 5-year holding period if all cash flows are reinvested at the discount rate?
4. What is the periodic return for the entire 5-year holding period if the cash flows are not reinvested—and instead are simply added to the final balance?
5. What purchase price should you pay to earn your desired IRR?
Before you sign a contract, the seller has a change of heart. Now they want a purchase price of $8 million (and you adjust the resale price in year 6 accordingly). Use the new purchase and resale prices to answer the following questions.
6. What is the NPV of the investment?
7. What is the IRR of the investment?
8. Based on the NPV and the IRR, is it a good investment? Should you take the new deal?
Listening to the news, you start to become concerned about the possibility of a recession forthcoming. You decide to do a "sensitivity analysis" to determine if the investment is still worthwhile if the future doesn’t work out as you previously expected.
9. How do your NPV and IRR change under the following scenario?
a. Rents do not grow at all in years 1 and 2.
b. Property prices decrease by 10% in year 1.
c. The market becomes riskier, so you require a 14% IRR to make you comfortable investing
1.The cap rate for Year 1 is:Operating income = 25 * 32,900 = 822,500,Other Income = 0,Total Income = 822,500,Expenses = 350,000,Net Operating Income (NOI) = 472,500,
Cap rate = NOI / Property Value = 472,500 / 7,500,000 = 6.3%
According to CBRE, Class A office buildings have an average cap rate of 4.75%, while Class B office buildings have an average cap rate of 6.75%.
Thus, this building would be considered a Class B building as it has a cap rate higher than the Class A average.
2.PBTCF = EGI – Operating Expenses – Capital Expenditures – Leasing Costs – Debt Service
Year 1:EGI = 822,500
Operating Expenses = 350,000
Capital Expenditures = 500,000
Leasing Costs = 82,250
Debt Service = 1,310,140 (6,710,140 * 0.068)
PBTCF = (420,890)
Year 2:EGI = 863,625 (822,500 * 1.05)
Operating Expenses = 367,500 (350,000 * 1.05)
Capital Expenditures = 50,000
Leasing Costs = 89,681 (863,625 * 0.10)
Debt Service = 1,310,140
PBTCF = 36,304
Year 3:EGI = 906,806 (863,625 * 1.05)
Operating Expenses = 385,875 (367,500 * 1.05)
Capital Expenditures = 50,000
Leasing Costs = 95,180 (906,806 * 0.10)
Debt Service = 1,310,140PBTCF = 165,611
Year 4:EGI = 952,147 (906,806 * 1.05)
Operating Expenses = 404,169 (385,875 * 1.05)
Capital Expenditures = 50,000
Leasing Costs = 101,737 (952,147 * 0.10)
Debt Service = 1,310,140
PBTCF = 287,101
Year 5:EGI = 999,754 (952,147 * 1.05)
Operating Expenses = 423,378 (404,169 * 1.05)
Capital Expenditures = 50,000
Leasing Costs = 108,466 (999,754 * 0.10)
Debt Service = 1,310,140
PBTCF = 268,770
Year 6:EGI = 1,049,741 (999,754 * 1.05)
Operating Expenses = 443,547 (423,378 * 1.05)
Capital Expenditures = 50,000
Leasing Costs = 115,369 (1,049,741 * 0.10)
Debt Service = 6,779,942 (6,710,140 + 69,802)
PBTCF = (6,094,118)
3.First, we need to calculate the discount rate:Purchase price = 7,500,000,Capitalization rate (cap rate) = 6.3%,NOI = 472,500,NOI / Purchase price = Cap rate472,500 / Purchase price = 6.3%,Purchase price = $7,500,000,Discount rate = IRR = 12%,Using the financial calculator, we get a PV of 7,171,841.54.
The periodic return is:Periodic return = (FV / PV)^(1/n) – 1 = (9,583,283 / 7,171,841.54)^(1/5) – 1 = 0.090 or 9.0%
4.If cash flows are not reinvested, we can use the IRR function on a financial calculator or in Excel:= IRR (cash flows)
We get an IRR of 15.7%.
5We know that the discount rate (which is the same as the IRR) is 12%. Therefore, we need to adjust the purchase price until the PV of the cash flows equals the new purchase price.
Using the financial calculator, we get a PV of 9,583,283 at the current purchase price of 7,500,000.
Therefore, the new purchase price required to get a 12% IRR is:PMT = 851,542.14 (annual payment)N = 5I/Y = 12%FV = $9,583,283 (future value)CPT PV = -8,000,000 (present value)
6. Year 1:PV = (420,890)
Year 2:PV = 32,400
Year 3:PV = 122,177
Year 4:PV =202,534
Year 5:PV = 187,069
Year 6:PV = 4,756,256
NPV = -125,454
According to the NPV, the investment is not good since it has a negative value.
7. IRR = 6.9%
According to the IRR, the investment is not good since it is less than the required rate of return of 12%.
8. Based on the NPV and the IRR, the investment is not good and should not be pursued. Therefore, the new deal should not be taken.
9. a. Rents do not grow at all in years 1 and 2.:NPV = -$682,020IRR = 0.4%Both the NPV and IRR are negative.
b. Property prices decrease by 10% in year 1.NPV = -$2,634,502IRR = -21.9%Both the NPV and IRR are negative.
c. The market becomes riskier, so you require a 14% IRR to make you comfortable investing,NPV = -$134,826IRR = 13.7%
The NPV is still negative, while the IRR is now above the required rate of return. The investment may be considered but with caution.
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Common retention rates include which of the following?
10%
5%
50%
A and B
Common retention rates include A and B, which are 10% and 5%. Retention rate refers to the percentage of customers or users who continue to engage with a product, service, or platform over a specific period.
It is an important metric for businesses to measure customer loyalty and the effectiveness of their retention strategies.
In the given options, A and B are mentioned. Option A represents a retention rate of 10%, and option B represents a retention rate of 5%. These percentages indicate the proportion of customers or users who remain active or retained within a given timeframe. Higher retention rates are generally favorable for businesses as they indicate a higher level of customer satisfaction and loyalty.
Therefore, the correct answer is option D: A and B, as they represent common retention rates of 10% and 5%, respectively.
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The firm's tax rate is 35% - The current price of Harry Davis' 125% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $. Harry Davis does not use short-term interestbearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. - The current price of the firm's 10%,$100 par value, quarterly dividend, perpetual preferred stock is \$. Harry Davis would incur flotation costs equal to 6% of the proceeds on a new issue. - Harry Davis' common stock is currently selling at $70 per share. Its last dividend (D0) was $, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Harry Davis' beta is 1.4, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.2% risk premium. - Harry Davis' target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity. Group 3: Bond price =1150.25-Preferred stock =107.54−D0=3.12 3. Should the costs be histurical (cmbedded) custs or ecw (trarginal) costs? Why? 4. What is the market Interest rate en Harry Davis' debt, and what in the comapenent eost of the tile drht for the WacC perpese? 5. What is the firen's cast of preferred stock? 8. Harry Davis docsn't plan to issue new shares of common stock. Using the CAPM approach, what is Harry Davis' estimated cost of equity? 9. What is the estimated cost of cquify using the discounted cash flow (DCF) approach?
3. The costs should be marginal costs because they reflect the actual costs incurred for future financing decisions.
Historical costs are not relevant for decision-making as they pertain to past actions.
4. The market interest rate on Harry Davis' debt can be determined by analyzing the yield on comparable bond in the market. The component cost of equity can be calculated using the CAPM (Capital Asset Pricing Model), which considers the risk-free rate, market risk premium, and the company's beta.
5. The cost of preferred stock can be calculated by dividing the preferred stock's annual dividend by its market price.
8. Using the CAPM approach, Harry Davis' estimated cost of equity can be calculated as follows: Cost of equity = Risk-free rate + (Beta × Market risk premium)
9. The estimated cost of equity using the discounted cash flow (DCF) approach involves discounting the expected future cash flows of the company's equity and calculating the present value. This approach considers the time value of money and the company's specific cash flow projections.
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Answer both Part A and Part B. Explain your answers in detail. Part A: Define the term "civil litigation" and identify and describe the six-stages involved in most civil litigation lawsuits. Part B: Define the term "alternative dispute resolution," then compare and contrast the civil litigation and ADR processes.
Part A - The procedure by which civil disputes are settled in a court of law is known as civil litigation. Part B - Any means of resolving disputes without going to court is referred to as "ADR".
A- A civil lawsuit, also known as civil litigation, is based on non-criminal statutes and is thus a totally distinct legal process from criminal proceedings or criminal court. A civil lawsuit, such as one for personal injury, is a legal disagreement resolved by the courts.
To get legal counsel concerning your potential claim, you should first speak with potential advocates, particularly an accomplished personal injury lawyer. To avoid wasting time and resources filing a case that is not likely to succeed or go to trial, you must ensure that you have a strong case.
Your civil litigation case will proceed in one of the following four ways following an initial consultation:
PleadingsDiscovery Trial AppealB- Alternative dispute resolution (ADR) refers to resolving conflicts outside of the legal system. Contrary to litigation, which has a binary result (win or lose), parties can use ADR to customize the resolution of their disputes.
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Which of the following statements is correct ?
i. The slope of the security market line is measured by the market risk premium.
ii. Two securities with the same stand-alone risk can have different betas.
iii. Company-specific risk can be diversified away.
iv. The market risk premium is affected by attitudes about risk.
v. All of the above are correct.
The correct statement among the given options is "v. All of the above are correct."
i. The slope of the security market line (SML) is indeed measured by the market risk premium. The SML represents the relationship between an asset's expected return and its systematic risk, as measured by beta.
ii. Two securities with the same stand-alone risk can have different betas. Beta measures the systematic risk of an asset relative to the overall market. Even if two securities have the same stand-alone risk, their betas may differ depending on their correlation with the market.
iii. Company-specific risk can be diversified away. By constructing a well-diversified portfolio, investors can reduce or eliminate company-specific risk through the benefits of diversification.
iv. The market risk premium is affected by attitudes about risk. The market risk premium is the additional return required by investors for taking on the systematic risk of the market. Attitudes about risk, such as risk aversion or risk tolerance, can influence the level of the market risk premium.
Therefore, all of the above statements are correct.
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You expect Geaux Tiger stock to pay dividends of $6.75 exactly one year from today and $5.64 exactly two years from today. After the second dividend, future dividends will grow at a constant rate of 5% per year indefinitely. Using a discount rate of 11.4%, estimate Geaux Tiger's intrinsic value. Round your answer to the nearest penny.
The intrinsic value of Geaux Tiger stock is estimated to be $109.82.
To calculate the intrinsic value, we need to find the present value of all future dividends. We can use the dividend discount model (DDM) to do this.
First, we find the present value of the dividends one year from today and two years from today. Using the discount rate of 11.4%, we discount the dividends as follows:
Present value of the first dividend = $6.75 / (1 + 0.114) = $6.04
Present value of the second dividend = $5.64 / (1 + 0.114)^2 = $4.64
Next, we calculate the present value of the future dividends growing at a constant rate of 5% per year. Since these dividends will continue indefinitely, we can use the perpetuity formula:
Present value of perpetual dividends = Dividend / (Discount rate - Growth rate) = $5.64 / (0.114 - 0.05) = $95.25
Finally, we sum up the present value of all the dividends to get the intrinsic value:
Intrinsic value = Present value of the first dividend + Present value of the second dividend + Present value of perpetual dividends
= $6.04 + $4.64 + $95.25
= $106.93
Rounding to the nearest penny, the estimated intrinsic value of Geaux Tiger stock is $109.82.
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