Question 1 A companys required rate of return is 4 The current dividend payment is $2 00 It is expected that the growth rate for first 2 years is 2 , and year 3 onwards has no growth What is the price of the companys share today Question 2 A companys required rate of return is 4 It is expected to have zero growth first 2 year, growth rate at 5 for next 1 year, and growth rate at 2 thereafter What would be the price of its share today if the dividend today is $10 00 Question 3 The following table gives you the growth rate of a firm in the respective years After year 4, the dividend growth rate is constant at 10 The required return is 13 What would the price of the share be now, if the current dividend is $1 80 Year 0 1 2 3 4 Growth rate 8 12 8 10 QUESTION 4 A company, with cost of capital of 10 is faced with three possible projects A, B and C The cash outflow and inflows are given in the table below Initial Investment Project A Project B Project C $40,000 $35,000 $40000 Year Operating cash inflows 1 $13,000 $7,000 $19000 2 $13,000 $5,000 $50 3 $13,000 $3,000 $13000 4 $13,000 $16,000 $10000 5 $13,000 $19,000 $70000 Payback period NPV Profitability Index IRR i)Calculate the payback period, NPV and the profitability index for each project ii)If the projects are mutually exclusive projects, indicate which project should be selected for each method of capital budgeting iii)If they are independent projects, indicate which project should be selected for each method of capital budgeting iv)If you are given three internal rate of return (IRR), 17 , 19 and 33 , logically, which IRR belongs to which projects QUESTION 5 The internal rate of return and the NPV methods in capital budgeting may give use different or conflicting answer in selecting two mutually exclusive projects Briefly explain why and when this could happen

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 24, 2024

Question 1 A companys required rate of return is 4%. The current dividend payment is $2.00. It is expected that the growth rate for first

Question 1

A companys required rate of return is 4%. The current dividend payment is $2.00. It is expected that the growth rate for first 2 years is 2%, and year 3 onwards has no growth. What is the price of the companys share today?

Question 2

A companys required rate of return is 4%. It is expected to have zero growth first 2 year, growth rate at 5% for next 1 year, and growth rate at 2% thereafter. What would be the price of its share today if the dividend today is $10.00?

Question 3

The following table gives you the growth rate of a firm in the respective years. After year 4, the dividend growth rate is constant at 10%. The required return is 13%. What would the price of the share be now, if the current dividend is $1.80?

Year	0	1	2	3	4
Growth rate	-	8%	12%	8%	10%

QUESTION 4

A company, with cost of capital of 10% is faced with three possible projects A, B and C. The cash outflow and inflows are given in the table below.

Initial Investment	Project A	Project B	Project C
$40,000	$35,000	$40000
Year	Operating cash inflows
1	$13,000	$7,000	$19000
2	$13,000	$5,000	$50
3	$13,000	$3,000	$13000
4	$13,000	$16,000	$10000
5	$13,000	$19,000	$70000
Payback period
NPV
Profitability Index
IRR

i)Calculate the payback period, NPV and the profitability index for each project.
ii)If the projects are mutually exclusive projects, indicate which project should be selected for each method of capital budgeting.
iii)If they are independent projects, indicate which project should be selected for each method of capital budgeting.
iv)If you are given three internal rate of return (IRR), 17%, 19% and 33%, logically, which IRR belongs to which projects?

QUESTION 5

The internal rate of return and the NPV methods in capital budgeting may give use different or conflicting answer in selecting two mutually exclusive projects. Briefly explain why and when this could happen.