Chapter 4: Question: (page 281)
What is the present value of
c. $26,000 in 14 years at 6 percent
Answer
The present value is $11,499.83
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How much would you have to invest today to receive a. $15,000 in 8 years at 10 percent?
Question:Ecology Labs Inc. will pay a dividend of \(6.40 per share in the next 12 months (D1). The required rate of return (Ke) is 14 percent and the constant growth rate is 5 percent.
a. Compute P0. (For parts b, c, and d in this problem, all variables remain the same except the one specifically changed. Each question is independent of the others.)
b. Assume Ke, the required rate of return, goes up to 18 percent. What will be the new value of P0?
c. Assume the growth rate (g) goes up to 9 percent. What will be the new value of P0? Ke goes back to its original value of 14 percent.
d. Assume D1 is \)7.00. What will be the new value of P0? Assume Ke is at its original value of 14 percent and g goes back to its original value of 5 percent.
Question:Justin Cement Company has had the following pattern of earnings per share over the last five years:
Year Earnings per Share
20X1 ................... $5.00
20X2 ................... 5.30
20X3 ................... 5.62
20X4 ................... 5.96
20X5 ................... 6.32
The earnings per share have grown at a constant rate (on a rounded basis) and will continue to do so in the future. Dividends represent 40 percent of earnings.
Project earnings and dividends for the next year (20X6).
If the required rate of return (Ke) is 13 percent, what is the anticipated stock price (P0) at the beginning of 20X6?
Explain how the collections and purchases schedules are related to the borrowing needs of the corporation
What two components make up the required rate of return on common stock?
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