If shareholders are granted a preemptive right they will:

27. If shareholders are granted a preemptive right they will a. be given the choice of receiving dividends either in cash or32. What is the present value of a stream of a future stream of $500 payments each to be made at the beginning of the next thPlease
help answer all questions correctly with explanations.

Answer

Question – 27

The Correct answer choice is
(d). have priority in the purchase of any newly issued
shares

If shareholders are granted a
preemptive right, then they will have priority in the purchase of
any newly issued shares.

Question - 28

Market Yield on Common Share = [D0(1 +
g) / P0] + g

Where, Dividend in Next Year (D1) =
$2.20 per share [$2.00 x (1 + 0.10)]

Current selling price of the share
(P0) = $44.00 per share

Dividend Growth Rate (g) = 10%

Therefore, the Market Yield on
Common Share = [D0(1 + g) / P0] + g

= ($2.20 / $44.00) + 0.10

= 0.05 + 0.10

= 0.15

= 15%

Question – 29

Future Value of an Ordinary Annuity =
P x [{(1+ r)n - 1} / r ]

Annual Payment (P) = $500

Annual Interest Rate (r) = 6% per
year

Number of years (n) = 3 Years

Future Value of an Ordinary Annuity
= P x [{(1+ r)n - 1} / r ]

= $500 x [(1.191016 – 1) / 0.06]

= $500 x [0.191016 / 0.06]

= $500 x 3.1836

= $1,591.80

Question – 30

Present Value of an
Ordinary Annuity is calculated by using the following
formula

Annual Payment (P) = $500

Annual Interest Rate (r) = 6% per
year

Number of years (n) = 3 Years

Present Value of an Ordinary Annuity = P x [{1 - (1 / (1 + r) n}
/ r]

= $500 x [{1 - (1 / (1 + 0.06)3} / 0.06]

= $500 x [{1 - (1 / 1.191016)} / 0.06]

= $500 x [(1 - 0.839619) / 0.06]

= $500 x (0.160381 / 0.06]

= $500 x 2.673011

= $1,336.51

Question – 31

Future Value of an Annuity Due = (1 +
r) x P x [{(1+ r)n - 1} / r ]

Annual Payment (P) = $500

Annual Interest Rate (r) = 6% per
year

Number of years (n) = 3 Years

Future Value of an Annuity Due = (1
+ r) x P x [{(1+ r)n - 1} / r ]

= (1 + 0.06) x $500 x [{(1 +
0.06)3 – 1} / 0.06]

= 1.06 x $500 x [(1.191016 – 1) /
0.06]

= 1.06 x $500 x [0.191016 /
0.06]

= 1.06 x $500 x 3.1836

= $1,687.31

Question - 32

Present Value of an
Annuity Due is calculated by using the following formula

Annual Payment (P) = $500

Annual Interest Rate (r) = 6% per
year

Number of years (n) = 3 Years

Present Value of an Annuity Due = (1 + r) x P x [{1 - (1 / (1 +
r) n} / r]

= (1 + 0.06) x $500 x [{1 - (1 / (1 + 0.06)3} /
0.06]

= 1.06 x $500 x [{1 - (1 / 1.191016)} / 0.06]

= 1.06 x $500 x [(1 - 0.839619) / 0.06]

= 1.06 x $500 x (0.160381 / 0.06]

= 1.06 x $500 x 2.673011

= $1,416.70

Leave a Comment