EN X Home Chegg C X ASSIGNMENT-5 b X Upload Assignment: Assi Bbd X 4-sa lan edu
ID: 2764601 • Letter: E
Question
EN X Home Chegg C X ASSIGNMENT-5 b X Upload Assignment: Assi Bbd X 4-sa lan edu sa -7817330 1/courses/FIN-101-20857-201520/Assignment-5.pdf https:// Getting Started Q.1. What is the general formula used to calculate the price of a share of a stock? Explain with suitable example. Q.2. What three different models are used to value stocks based on different dividend patterns? Q.3. Richard Inc. is currently evaluating Project 1 Project 2 Project 3 three projects that are independent. All three projects cost the same at S500,000. Expected cash flow streams are shown in the following table. Which projects would be accepted at a discount rate of 14.8 percent? Use NPV method. 0 S245,125 $125,000 S212,336 $500,000 $112,500 $150,000 S375,000 $500,000 $74,000 Q4. What are the differences between capital projects that are independent, mutually exclusive, and contingent? ALL THE BESTExplanation / Answer
2.Based on dividend patterns, the three stock valuation models are:
(i) Zero-growth dividend model
(ii) Constant-growth dividend model
(iii) Supernormal dividend growth model
3. NPV of project 1 = -$500,000 + {$0/(1+.148)1} + {$125,000/(1+.148)2} + {$150,000/(1+.148)3} + {$375,000/(1+.148)4} = -$90,103.11
NPV of project 2 = -$500,000 + {$0/(1+.148)1} + {$0/(1+.148)2} + {$500,000/(1+.148)3} + {$500,000/(1+.148)4} = $118,353.00
NPV of project 3 = -$500,000 + {$245,125/(1+.148)1} + {$212,336/(1+.148)2} + {$112,500/(1+.148)3} + {$74,000/(1+.148)4} = -$8,396.83
4.A project is independent if the decision to accept or reject it does not affect the decision to accept or reject another project. On the other hand, projects are mutually exclusive if the acceptance of one implies rejection of the other. Contingent projects are those in which the acceptance of one project is dependent on another project.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.