This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Answer: yes, you could use the DCF using nonconstant growth. You would find the PV of the dividends during the nonconstant growth period and add this value to the PV of the series of inflows when growth is assumed to become constant. f. What is the cost of equity based on the bond-yield-plus-risk-premium method? Answer: r s = companys own bond yield + risk premium. First find the YTM of the bond: Enter n = 30, PV = -1153.72, pmt = 60, and FV = 1000, and then press the i button to find r/2 = i = 5%. Since this is a semiannual rate, multiply by 2 to find the annual rate, r = 10%. The assumed risk premium is 4%, thus r s = 0.10 + 0.04 = 14%. Mini Case: 10 - 16...
View Full Document
This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08
- Discounted Cash Flow (DCF)