Question
Assume two-period perfect certainty model. A firm has initial endowment of $20,000,000. Market rate of return is 25%. The firm pays $7,000,000 dividend now after
Assume two-period perfect certainty model. A firm has initial endowment of $20,000,000. Market rate of return is 25%. The firm pays $7,000,000 dividend now after investing remaining fund in optimal investment opprtunities, which will generate on an average 35% return only in the next year.
a) What is the value of this firm after investment?
b) Net present value of the investment?
c) The value of the firm before the investment decision is made?
d) Dividends the firm would pay today?
e) Dividends the firm would pay next year?
f) Present value of the firm?
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