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Ivahew [28]
2 years ago
7

What is the value of a firm with initial dividend Div 1​, growing for n years​ (i.e., until year n plus 1​) at rate g 1 and afte

r that at rate g 2 ​forever, when the equity cost of capital is r​? ​(Hint​: Find the present value of the n​-year dividend stream which grows at g 1 per year and add the present value of the continuation value found at year n​.)
Business
1 answer:
finlep [7]2 years ago
8 0

Answer:

stock price = (Div 1 / r - g1) x {1 - [(1 + g1) / (1 + r)]ⁿ}    +    (Div 1 / r - g2) x [(1 + g1) / (1 + r)]ⁿ⁻¹

Explanation:

since the company will first grow at g1 for n years, and then at g2 forever, we need to first determine the present value of the dividends growing at g1 for n years:

present value of the dividends during n = (Div 1 / r - g1) x {1 - [(1 + g1) / (1 + r)]ⁿ}

e.g. div = $2, n = 5 years, g1 = 8%, r = 12%

(2 / 12% - 8%) x {1 - [(1 + 8%) / (1 + 12%)]⁵} = 50 x 0.166263 = $8.31

now we find the formula to calculate the present value for the growing perpetuity g2 at n - 1 years:

= (Div 1 / r - g2) x [(1 + g1) / (1 + r)]ⁿ⁻¹

following the same example but changing g1 for g2, and g2 = 5%

= (2 / 12% - 5%) x [(1 + 5%) / (1 + 12%)]⁵⁻¹ = 28.5714 x 0.772476 = $22.07

we now add both parts to finish our example = $8.31 + $22.07 = $30.38

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Paragon Leasing has been approached by Mid-America Trucking Company (MATC) to provide lease financing for a fleet of new tractor
Vilka [71]

Answer:

$32,647

Explanation:

P=R(1-(1+i)^-n)/i

Where P=$140,000

R=?

i=14%

n=7 years

by putting above values in formula, we get

140,000=R (1-(1+.14)^-7)/.14

$140,000=R4.288

R=$140,000/4.288

R=$32,647

4 0
2 years ago
Duckistan Production Possibilities A B C D E Civilian Goods 20 18 14 8 0 Military Goods 0 1 2 3 4 Herbania Production Possibilit
olganol [36]

Answer:

B. Herbania is technologically superior to Duckistan in producing civilian goods.

Explanation:

Duckistan Production Possibilities

                            A    B    C    D    E

Civilian Goods    20  18   14    8    0

Military Goods     0     1    2     3    4

opportunity cost  -     ¹/₁₈  ¹/₇  ³/₈   4     civilian goods

opportunity cost  20  18   7   2.7   -     military goods

Herbania Production Possibilities

                            A    B    C    D    E

Civilian Goods    40  36  26   14   0

Military Goods     0    1     2     3    4

opportunity cost  -    ¹/₃₆  ¹/₁₃  ³/₁₄  4     civilian goods

opportunity cost  40 36   13  4.7   -     military goods

Herbania has an absolute advantage in the production of civilian goods. Since it also has a lower opportunity cost of producing civilian goods, therefore, it also has a comparative advantage at producing civilian goods. Assuming that resources are equal in both countries, then we can assume that Herbania is technologically superior in the production of civilian goods.

Dukistan has a lower opportunity cost of producing military goods, therefore, it has a comparative advantage at producing military goods.

3 0
2 years ago
The manhawkin fund has an expected return of 16% and a standard deviation of 20%. the risk-free rate is 4%. what is the reward-t
ArbitrLikvidat [17]
We know that expected return is 16%. The standard deviation is 20%. And in addition, the risk-free rate is 4%. Denote with x: expected return, "Y": the risk-free rate and sigma: standard deviation. The reward-to-volatility ratio is(x-y) / (sigma) = (16-4) / 20 = .6
5 0
2 years ago
Maria, age 28, wants to pay no more than $300 a year in life insurance. What is the face value of the largest 20-year term polic
VMariaS [17]

Answer:

Explanation:

Net Cost of Life Insurance Premium : Life insurance policy entails Premium to be paid by the insured at a monthly / quarterly interval. insured often gets dividend from the insurance company and in that case, the net cost of premium will be low

The 20 years premium can be calculated with Annual Premium which is not given in the question, therefore i will solve for all the option but please pick the answer that the Annual premium is with you

a)   20 years premium = Annual Premium x Number of years

                                     = 11700 x 20

                                    = 234,000

b)   20 years premium = Annual Premium x Number of years

                                     = 7900 x 20

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c)  20 years premium = Annual Premium x Number of years

                                     = 550 x 20

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d)  20 years premium = Annual Premium x Number of years

                                     = 28350 x 20

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2 years ago
Choose the correct answer and rationale. “The prices listed on retail websites...”
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