(Learning Objective 1: Use income data to make an investment decision) Ryder Cosmetics in P11-48A…

(Learning Objective 1: Use income data to make an investment decision) Ryder Cosmetics in P11-48A…

(Learning Objective 1: Use income data to make an investment decision) Ryder Cosmetics in P11-48A holds significant promise for carving a niche in its industry. A group of Irish investors is considering purchasing the company’s outstanding common stock. Ryder’s stock is currently selling for $45 per share. A BetterLife Magazine story predicted the company’s income is bound to grow. It appears that Ryder can earn at least its current level of income for the indefinite future. Based on this information, the investors think that an appropriate investment capitalization rate for estimating the value of Ryder’s common stock is 10%. How much will this belief lead the investors to offer for Ryder Cosmetics? Will Ryder’s existing stockholders be likely to accept this offer? Explain your answers.

 

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