Question
1.Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have no constant growth of 20 percent for 2 years followed by a
1.Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have no constant growth of 20 percent for 2 years followed by a constant rate of 5 percent thereafter. The firm's required return is 10 percent. (Mark-1)
a. How far away is the terminal, or horizon, date?
b. What is the firm's horizon, or terminal, value?
c. What is the firm's intrinsic value today?
2.You are considering investing in ICI. Suppose ICI currently paid Rs.3 dividend and enjoying super growth and expected to pay 30% more in dividends each year for 3 years. After these three years the dividend growth rate is expected to be 2% per year forever. If the required return for ICI common stock is 11%, what is a share worth today? And if ICI stock is currently selling at Rs.68, should you buy this stock at this price or not? (Mark-1)
3.A machine with the initial investment of Rs.120,000 and projected life of 5 Years is forecasted with following cash inflows; (Marks-4)
YearCash Inflows
125,000
235,000
355,000
445,000
535,000
Calculate;
a)Payback Period.
b)Discounted Payback Period.
c)Net Present Value.
d)Profitability Index.
e)Internal Rate of Return.
f)Should the project be accepted or not? Decide based on IRR.
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