What should be the price of XYZ Corporation stock today if the company just paid a dividend of $1.75 and expects the dividend to grow at 6% per year forever? Assume that the required rate of return on XYZ stock is 12%.
In order to answer the question, you will have to use the Gordon growth model, which assumes that the stock price of a firm is equal to the present value of the future dividends the shareholder expects to receive given a constant rate of growth in the dividend. P0 = d1 / (r - g) Where P0 = the price of the stock at t = 0 = ? d1 = the dividend to be paid next period (t = 1) = ? r = the required rate of return on the stock = 12% = 0.12 g = the dividend growth rate = 6% = 0.06 To get next year's dividend (d1), just grow the current dividend (d0 = $1.75) by 6% for one year. That is, d1 = d0 * (1 + g) d1 = $1.75 * (1 + 0.06) d1 = $1.855 Then, plug in the rest of the givens and solve for the price (P0). P0 = $1.855 / (0.12 - 0.06) P0 = $30.92 Therefore, XYZ stock should sell for $30.92.
Tom Costas started a corporation for his sports consulting business on January 1, 2019. The following transactions occurred during the first week of operations: 1/1/2019 - Tom Costas invested $20,000 cash in exchange for common stock 1/3/2019 - The company purchased office equipment on account for $5,000. 1/4/2019 - The company provided services for a client and received $4,000. 1/7/2019 - The company paid $2,400 for 6 months' office rent effective 1/1/2019. Analyze the transactions and record all journal entries required.
When recording journal entries for events that affect a business, two things must be certain: the accounting equation must remain in balance (Assets = Liabilities + Equity), and debits must equal credits. There's a four-step process you should undertake in order to record journal entries: 1 - Analyze source documents/read description of event 2 - Determine the accounts affected 3 - Determine the change in the selected accounts from (2) 4 - Set the debits (DR) and the credits (CR) based on (3) 1/1/2019 - Tom Costas invested $20,000 cash in exchange for common stock 1 - Stock certificate for ownership; exchange of cash 2 - Cash (asset), Common Stock (equity) 3 - Cash + 20,000, Common Stock - 20,000 4 - DR Cash, CR Common Stock Entry: DR Cash 20,000 CR Common Stock 20,000 1/3/2019 - The company purchased office equipment on account for $5,000. 1 - Invoice from vendor; delivery of equipment 2 - Accounts Payable (liability), Office Equipment (asset) 3 - Accounts Payable + 5,000, Office Equipment + 5,000 4 - CR Accounts Payable, DR Office Equipment Entry: DR Office Equipment 5,000 CR Accounts Payable 5,000 1/4/2019 - The company provided services for a client and received $4,000. 1 - exchange of cash; receipt given to customer 2 - Cash (asset), Consulting Revenue (revenue) 3 - Cash + 4,000, Consulting Revenue + 4,000 4 - DR Cash, CR Consulting Revenue Entry: DR Cash 4,000 CR Consulting Revenue 4,000 1/7/2019 - The company paid $2,400 for 6 months' office rent effective 1/1/2019. 1 - signed contract; exchange of cash 2 - Cash (asset), Prepaid Rent (asset) 3 - Cash - 2,400, Prepaid Rent + 2,400 4 - CR Cash, DR Prepaid Rent Entry: DR Prepaid Rent 2,400 CR Cash 2,400
FInd the zeroes of the following polynomial function below: f(x) = 2x^2 + 15x + 7
For this polynomial, there are a couple of options to solving for the zeroes of a second-degree (quadratic) polynomial function: factoring, quadratic formula. Using the quadratic formula always works; however, if the polynomial can be factored, it can be an easier method to use. Factoring - Personally, I like to use the "AC" method. The "AC" refers to the coefficients of a quadratic function in the form: f(x) = Ax^2 + Bx + C In order to make this method work, you have to find two numbers that have a product of A times C and a sum of B. For f(x) = 2x^2 + 15x + 7 A = 2 B = 15 C = 7 A times C = 2 * 7 = 14 B = 15 Since both the product and the sum are both positive, the two numbers you need to find must be positive. In this case, the two numbers are 1 and 14. 1 * 14 = 14 (product) 1 + 14 = 15 (sum) Therefore, you can factor 2x^2 + 15x + 7 with this setup: (2x + [insert]) * (x + [insert]) 1 and 14 are the numbers to insert. However, since the coefficient of the x^2 is 2, divide the 14 by 2 to get 7. (2x + 1) * (x + 7) Now, our polynomial function can be restated as f(x) = (2x + 1) * (x + 7) Now, set each linear function equal to zero and solve for x. 2x + 1 = 0 2x = -1 x = -1/2 x + 7 = 0 x = -7 Therefore, the zeroes are -1/2 and -7.