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1 ) Suppose you plan to start your own business in few years. Based on project sales and costs, you expected that the cash flows

1)Suppose you plan to start your own business in few years.
Based on project sales and
costs,
you expected that the cash flows over the SIX years life of the business will be as
follows:
Year 1 $1,200
Year 2 $2,500
Year 3 $3,200
Year 4 $4,500
Year 5 $5,500
Year 6 $6,000
It will cost about $40,000 to begin the new business. You use a 6% discount rate to
evaluate new business operation.
[1] What is Present Value
[2] What is NPV
[3] Explain will you suggest to take this project
Instruction: Please show your supportive calculations and brief explanatio
Suppose you invested stock $ 1,000, Dividend 100(1,000 x 10%). You intend to hold the
stock for three years. You project you will be able to sell it at the end of year 4 for
$1,200 and required rate of return 9.00%
What is Present Value?
---------------------------------------------------------------------------------------------------------------------
Question 2 : See PPT slide 14 for this calculation
What is the price in year 3
Formula : P3= D3/(1+ g)/(R g)
Suppose a company starts to pay dividends for the next three year. After the third year,
the dividend will grow at a constant rate of 5% per year. The required return is 7%.
Year Expected Dividend
13.5
24.5
35.5
1] What is Value of the dividends that will be paid between now and then. So the price in three year is.
P3= D3/(1+ g)/(R g)
2] What is the total value of stock as the present value of the first three dividends plus the PV
of the price at Time 3, P3
Po = D1/(1+ R)1+ D2/(1+ R)2+ D3/(1+ R)3+ P3/(1+ R)3

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