Question
Q2) Consider a bright entrepreneur living in a Perfect Capital Market (PCM) under certainty with only two time periods where r=10% or 0.1. S/he does
| Q2) Consider a bright entrepreneur living in a Perfect Capital Market (PCM) under certainty with only two time periods where r=10% or 0.1. | ||
| S/he does not have any initial material wealth but has a brilliant project which consists of generating $55,000 in t=2 by investing $30,000 during t=1 | ||
| to make a better mousetrap. Our entrepreneur wants to finance the project by borrowing in the capital market. (V= value of the firm for this entrepreneur; | ||
| X=net earnings, I=investment expenditures, d=dividend per share, N=number of shares) |
| |
| a) Is this a "good" project? Explain. |
| |
| b) Can s/he finance this project? How? c) What is the value of this project for our entrepreneur? Hint: you can use eq 4.7 on p55 |
| |
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Finance For Executives Managing For Value Creation
Authors: Gabriel Hawawini, Claude Viallet
6th Edition
1473749247, 9781473749245
