Question
How do you complete this problem in excel? Dranky Movers expects to earn $100,000 this year. Earnings will grow 3% indefinitely if the firm makes
How do you complete this problem in excel?
Dranky Movers expects to earn $100,000 this year. Earnings will grow 3% indefinitely if the firm makes no new investments. The firms discount rate is 10%, and 250,000 shares are outstanding. What is the price per share of stock without the new line, assuming that all of the earnings are paid out as dividends?
Dranky has the opportunity to add a line of computer accessories to the business. The immediate outlay (t = 0) for this opportunity is $75,000 (obtained via a bank loan), and the earnings from the line will begin one year from now (t = 1). The computer accessories business will generate $25,000 in additional earnings at the end of the year (which also take into account the interest necessary to pay back the debt). These earnings will also grow at 3% indefinitely. What is the per-share-value of the growth opportunities (NPV) that the new line offers?
If the computer accessories line is added, what is the current value of the firms stock?
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