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- This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
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- February 27, 2020 at 2:51 am #563259AnonymousInactive
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Hello, need some help with the following questions
1. which of the following asset valuation will deliver the highest return on asset assuming an increase in price levels?
A. Net book value
B. Gross book value
C. Replacement cost
D. Net realizable valuethe answer given is A. i am confused on why the answer isnt C because based on my understanding, the replacement value is the cost of setting up an equivalent venture, so, if the price lvls increase the cost of setting up will increase. How is my understanding flawed?
2. Shine wants to buy shares of Perry co in two years. Shine uses the dividend valuation model with an assumed dividend growth of 5%.
if Shine’s discount rate is 10% and Perry’s current dividend is $20, what is the approximate price shine will pay?
A. 400
B. 420
C. 441
D. 463The answer is D. the answer i managed to get was C.
my calculation:
Po= [20 (1.05)^2 ]/ (10%-5%)answer:
Po= [20 (1.05)^3]/ (10%-5%)the question stated that you will be buying the shares in 2 yrs so why is it 1.05^3 instead of 1.05^2?
February 27, 2020 at 4:08 pm #5633431. The return on assets has the value of the assets as the denominator. Therefore the lower the value the higher the return will be.
2.Share values are always ex-div values unless told otherwise. So if they buy a share in 2 years time, the first dividend will be in 3 years time.
February 27, 2020 at 8:26 pm #563366AnonymousInactive- Topics: 2
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ahhhh, it is clear now! thank you Mr. Moffat!
February 27, 2020 at 9:37 pm #563393You are welcome 🙂
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