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Problem 1. (15 points – 5 points each) You have a project that is very similar to the types

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This paper circulates around the core theme of Problem 1. (15 points – 5 points each) You have a project that is very similar to the types together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.

Problem 1. (15 points – 5 points each) You have a project that is very similar to the types of… 1 answer below » Problem 1. (15 points – 5 points each) You have a project that is very similar to the types of projects in BearcatCo (an all equity firm). On average the project is expected to generate positive cash flows starting next year (at t = 1¬) of $500,000, growing at 10 percent per year for the foreseeable future. Currently the scale of BearcatCo is such that their earnings per share is $5.00. BearcatCo pays out all of its earnings as an annual dividend. The current price of BearcatCo is $47.00 per share. a. Given the above information about BearcatCo, what is the appropriate discount View complete question » Problem 1. (15 points – 5 points each) You have a project that is very similar to the types of projects in BearcatCo (an all equity firm). On average the project is expected to generate positive cash flows starting next year (at t = 1¬) of $500,000, growing at 10 percent per year for the foreseeable future. Currently the scale of BearcatCo is such that their earnings per share is $5.00. BearcatCo pays out all of its earnings as an annual dividend. The current price of BearcatCo is $47.00 per share. a. Given the above information about BearcatCo, what is the appropriate discount rate that should be applied to the cash flows of your project? Document Preview: Problem 1. (15 points – 5 points each)
You have a project that is very similar to the types of projects in BearcatCo (an all equity firm). On average the project is expected to generate positive cash flows starting next year (at t = 1) of $500,000, growing at 10 percent per year for the foreseeable future.

Currently the scale of BearcatCo is such that their earnings per share is $5.00. BearcatCo pays out all of its earnings as an annual dividend. The current price of BearcatCo is $47.00 per share.

a. Given the above information about BearcatCo, what is the appropriate discount rate that should be applied to the cash flows of your project?

b. Given this opportunity cost (discount rate), what is the PV of your project?

c. An analyst that works for you estimated that the cost of the project (incurred at t = 0) is $80,000,000. Should you adopt the project? That is, is it the case that the amount of money you have to spend to get the future cash flows is less than these future cash flows are worth in present value terms?

_x000C_Problem 2. (10 points)

What would an investor be willing to pay for common stock in a firm that has no growth opportunities but pays dividends of $4.00 per year, starting today? The next dividend will be paid in exactly 1 year. The required rate of return is a stated annual rate of 10.5% compounded quarterly. If the investor buys now, they will receive today’s dividend. (4 points)

What would an investor be willing to pay for common stock in a firm that is expected to pay an annual dividend that will grow at 6 percent over the next 3 years, then grow at 3 percent for 4 years and then stop growing (i.e., will grow at zero percent) from then on? The firm just paid its dividend of $5.00. Thus, if an investor buys this stock, they will not receive the dividend that was just paid. The next dividend will be paid in one year. The… Attachments: Q-Attachment.doc View less » Aug 01 2015 03:09 PM



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