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

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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:
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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: ____________________...
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