What is float? What is the value of a share of stock of HOV Inc. to an investor
ID: 2473461 • Letter: W
Question
What is float? What is the value of a share of stock of HOV Inc. to an investor who requires a 11 percent rate of return if HOV's current dividend (DO) is $1.05? Assume earning an dividends are expected to grow at a compound annual rate of 8 percent. Linlee Lovett was looking at her credit card statement with Citi Bank and noticed in small print that the APR increases to a penalty APR of 29.5% per year if she pays her bill late. Linlee learned from FIN3113 that the APR is not the true rate because it ignores compounding of interest. She knows that the true cost is the EAR (Effective Annual Rate). What is the EAR for the penalty APR assuming interest is compounding monthly? In the past, Simkins Enterprises has done well in cash management. The company has recently held cash to take advantage of bargain purchases that might arise. What type of cash balance best describes why Simkins Enterprises pays this new type of attention to cash management?Explanation / Answer
45. Float is the number of days it takes to liquidate the inventory. This is because float is the period taken from beginning to realisation of any transaction.
46. Current Dividend= 1.05
Required rate of return = 11%
growth rate = 8%
Thus, Expected Dividend = $1.05+ (1.05*8%)
= $1.134
Thus Price( P0) = Expected Dividend/ (Required rate of return- growth rate)
= $1.134/ (0.11-.08)
= $ 37.8
47. Effective Annual rate =[(1+I/n)^n -1] *100
= [(1+ 0.295/12)^12 -1]*100
= 33.8 %
where, I = Interest Rate
n= number of months
48. b. Speculation balance. This is because it would help to take advantage of any unpredictable but probable bargain purchases that arises.
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