Answered step by step
Verified Expert Solution
Question
1 Approved Answer
(a) The stock of company DEF is currently selling at $10.95 per share. The company had just paid a dividend of $1.00 per share and
(a) The stock of company DEF is currently selling at $10.95 per share. The company had just paid a dividend of $1.00 per share and its dividend is expected to grow at a rate of 10% per year over the next four years. If the cost of equity capital is 17%, what must be the annual growth after the fourth year in order for the stock to achieve a fair price of $10.95 per share? (5 marks) (b) Company BC is considering investing in a project costing $50,000 and with a 70% probability of the following cash inflows projection: Year 1 = $5,000; Year 2 = $10,000; Year 3 = $15,000; Year 4 = $15,000; Year 5 = $25,000; and Year 6 = $30,000. There is also a 30% probability that Year 5 and Year 6 cash inflows remain stagnant at $15,000 per year. In other words, Year 1 = $5,000; Year 2 = $10,000; Year 3 = $15,000; Year 4 = $15,000; Year 5 = $15,000; and Year 6 = $15,000. Given a cost of capital of 14%, what is the expected NPV of this project
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started