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Assignment_1 Asnwer key

# Assignment_1 Asnwer key - FIN540 AnswerKeyAssignment#1...

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FIN 540 Advanced Corporate Finance Answer Key Assignment #1 Dr. Suzanne Page Chapter 4 26. This is a growing perpetuity. The present value of a growing perpetuity is:  PV = C / (r – g)  PV = \$200,000 / (.10 – .05)  PV = \$4,000,000  It is important to recognize that when dealing with annuities or perpetuities, the present  value equation calculates the present value one period before the first payment. In this  case, since the first payment is in two years, we have calculated the present value one  year from now. To find the value today, we simply discount this value as a lump sum.  Doing so, we find the value of the cash flow stream today is:  PV = FV / (1 + r) t PV = \$4,000,000 / (1 + .10) 1 PV = \$3,636,363.64 Chapter 5 7.  We know the stock has a required return of 12 percent, and the dividend and  capital gains yield are equal, so: Dividend yield = 1/2(.12) = .06 = Capital gains yield

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Assignment_1 Asnwer key - FIN540 AnswerKeyAssignment#1...

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