The Earnings Per Share on a Composite Stock Index This

question 4

Essay

The earnings per share on a composite stock index this past year was $3.25.The earnings are expected to grow at a constant rate of 7 percent forever.The dividend payout ratio is expected to continue at its current rate of 35 percent and the dividend yield is expected to be 4 percent.Calculate the intrinsic value of the composite stock index.

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Definitions:

Total Fixed Costs (TFC)

The sum of all costs that remain constant regardless of the level of production or output in the short run.

Average Fixed Cost

The fixed costs of production divided by the total units of output, which decreases as production increases.

Total Cost

The complete cost of production, combining both fixed and variable costs.

Total Variable Cost

Total Variable Cost is the sum of all costs that vary with the level of production, such as materials and labor directly involved in the production.