ugBA103F08Quiz_04StocksandInvestments

ugBA103F08Quiz_04StocksandInvestments - 100 C = 1 200 C =...

This preview shows page 1. Sign up to view the full content.

UGBA103-F08 Friday, 24 Oct-2008 Quiz IV: Investment UGBA 103 1. Company Y is expected to pay an end-of year dividend of \$5 a share. After the dividend its stock price is expected to sell at \$110. If the market capitalization rate is 8%, what is the current stock price? Please note that the quoted stock price is AFTER the dividend has already been paid out. (BMA 5.3) 2. The book value of a company is \$1000. Its return on equity is constant (forever) at 10% and the appropriate discount rate is 10%. The plowback ratio is 50% for the first 50 years and 20% from then on. What is the market value of the company? Hint: “Think first before you start massaging your calculator!” 3. Consider a project with the following cash flows:
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 100 C = , 1 200 C = and 2 75 C = . The project has two internal rates of return (-50% and +50%). For which discount rates is the project NPV positive? Answer should say something like: The discount rate must be greater (smaller) than x%) Hint: First calculate the NPV with zero discounting! Then draw a simple qualitative graph of the NPV vs. the discount rate (you know already know three points). No other calculations necessary! Please note that time zero cash flow is positive. (variation of BMA 6.5) Answer to #3: ____________________ Name: ________________ SID # : ________________ Section Number _________ Answer to #1: ____________________ Answer to #2: ____________________...
View Full Document

This note was uploaded on 10/02/2009 for the course UGBA 08547 taught by Professor Odean during the Spring '09 term at Berkeley.

Ask a homework question - tutors are online