WHAT IS THE IMPLIED RETURN ON EQUITY ON A COMMON STOCK IF THE PAYO...

28. What is the implied return on equity on a common stock if the payout ratio is 70% and the constant growth rate for dividends is 5%? A) 3.50%. B) 7.14%. C) 16.67%. D) 18.45%. 7SOLUTIONS FOR QUESTIONS 13 - 28 Question 13 Answer: C N=48, I/Y=0.6667, PMT=-$500, FV=0, CPT  PV=$20,480.96 Down payment = 25,000 – 20,480.96 = 4,519.04 Question 14 Answer: D PV of a growing perpetuity = C = 12,000 = $266,666.67 r – g 0.0625 - 0.0175 Question 15 Answer D N=30, I/Y=8.5, FV= -305,411.17, PV= 0 CPT PMT=$2,458.74 Question 16 Answer: A N=12 (3*4), PMT=O, FV=$2,200, PV=-$1500, CPT-7IIY= 3.2431 (this is quarterly rate) APR = 3.2431*4=12.97% Question 17 Effective monthly rate is r = (1+0.0625/2)

^2/12

- 1 = 0.5142% Monthly payment: N=240, I/Y=0.5142, PV=-$340,000, FV=0, CPT  PMT=$ 2,469.35 Remaining principal at the end of term is the PV of remaining payments: N=180, I/Y=0.5142, PMT=$2459.46, FV=0, CPT  PV=$ 289,459.98 Question 18 Notations: (PVIF r%, t) is the present value interest factor at r% for t years. (PVIFA r%, t) is the present value interest factor for an annuity at r% for t years. $10,000 = $X*(PVIF 8%,3) + $X*(PVIFA 8%,4)*(PVIF 8%,5)  $10,000 = $X*0.7938 + $X*3.3121*0.6806  $10,000 = $X*3.0480  X = $3,280.82 8Question 19 Answer: A 0 1 2 3 4 5 6 7 8 9 10 |---|---|---|---|---|---|---|---|---|---| R R R R R R R R $50,000 = R*(FVIFA 10,8%) – R*(FVIFA 2,8%)*(FVIF 5,8%) $50,000 = R*14.4866 – R*2.0800*1.4693 $50,000 = 11.4304R R = $4,374.28 where (FVIFA t, r%) is the future value interest factor for an annuity at r% for t years, and (FVIF t, r%) is the future value interest factor at r% for t Question 20 Answer: B i

_2-month

= (1 + 1%)

²

-1 = 2.01% FV = 100 × [(1 + 2.01%)

⁶

- 1] × (1 + 1%) – 100 × [(1 + 2.01%)

⁶

- 1] = $6.31