Question $3$

You are managing a successful manufacturing company focusing on agricultural products. The

company did not pay a dividend last year and is not expected to do so for the next two years.

Last year the company's growth accelerated, and management expects to grow the business

at a rate of $30$ percent for the next five years before growth slows to a more stable rate of $7$

percent. In the third year, management has forecasted a dividend payment of R$1\mathrm{.}20.$ Dividends

will grow with the company thereatter.

The required rate of return for such stocks is $11$ percent.

Required:

$3\mathrm{.}1.$ Calculate the value of the company's stock at the end of its rapid growth period $($i$.$e$.,$ at

the end of five years$).$

$3\mathrm{.}2.$ What is the current value of this share?

Question $4$

Your company is considering the purchase of new equipment. The equipment costs $R350000,$

and an additional $R110000$ is needed to install it$.$ The equipment will be depreciated straight$-$

line to zero over a five$-$year life. The equipment will generate additional annual revenues of

R$265000,$ and it will have annual cash operating expenses of R$83000.$ The equipment will be

sold for R$85000$ after five years. An inventory investment of R$73000$ is required during the life

of the investment. The company is in the $40$ percent tax bracket, and its cost of capital is $10$

percent.

Required:

What is the project NPV$?$