Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Need help solving all of Q12 Consider the following information: 12) The dividend for both of these companies will increase at a constant rate of

Need help solving all of Q12
image text in transcribed
Consider the following information: 12) The dividend for both of these companies will increase at a constant rate of 5% forever starting in year 5 . The expected market return is 4.7%, and the risk-free rate is 2.5%. 12a) What is the value of Rullo Inc.? Price: $94.885 P0=1.65+1.75+0+2+PV0P4=(Rg)D5=(.0478)(D4g)=.003(21.05)=70P4=(4+r)4D5=(1.0+7)42.1=1.75P0=1.581+1.606+0+1.66+1.75=6.59+88.24=94.83 25+2(.047.025)=0.069=6.9% P0=1.581+1.606+0+1.66+1.75=6.59+88.24=94.83 14'12b) What is the value of Papik Inc.? Price: $21.415 P0=(1.077)21+(1.077)21+(1.0+7)32+(1.077)41.5+P4=(1.07)4D5=1.575=1.31P0=4.85+16.56=21.41131+15.25 131+15.25 12c) Based on the above information from 12a and 12b, which stock would you buy and why? Circle One: Reillo in Papik Inc

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

7th Edition

007331465X, 978-0073314655

More Books

Students also viewed these Finance questions