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an investor begins a business with $1,000 investment. the company hss these results for the first teo years - income of $150 first year, pays
an investor begins a business with $1,000 investment. the company hss these results for the first teo years - income of $150 first year, pays out no dividends first year, income of $150 second year, pays ouy cumulative $300 as dividend and returns original $1000 investment.
discount rate for investment is 10%
pv factors for 10% are yr 1 - 0.90909 and yr 2 0.82645
1. abnormal earningd for yr 1 and yr 2 (keep in mind book value at beginning of yr 2 is original $1000 investment + income from yr 1 $150 minus dividends paid from yr 1 [0] ?
2. pv of 2 years of abnormal earnings ?
3. total cash at end of year 3 is $1300, so as of the initial invesrment what is the present value of the $1300?
4. how is pv of $1300 related to pv of abnormal earnings here in regards to accounting?
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