Based on the Information Provided, Calculate the Intrinsic Value in 2010

question 136

Multiple Choice

Based on the information provided, calculate the intrinsic value in 2010 of a share of INV Corp. using the Present Value of Earnings Model (infinite holding period) . For 2010 net income was $250,000, total debt was $50,000, and there were 206,263 shares outstanding. The required rate of return is 12 percent, and the estimated growth rate in earnings is 5.5 percent.

• A) $19.43
• B) $23.98
• C) $28.52
• D) $22.73
• E) $15.50

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Definitions:

Manufacturing Overhead Applied

The portion of estimated manufacturing overhead costs that is assigned to each unit of production, based on a predetermined rate.

Job-order Costing

An accounting method that tracks costs individually for each job, rather than within set periods.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead to individual units of production based on estimated costs.

Machine Hours

The total hours that a machine or group of machines operates during a specific period, often used as a basis for allocating manufacturing overhead.