Unformatted text preview: (4 pts) 2. We discussed alternatives to NPV when making investment decisions. Describe the payback period method, and give at least 2 reasons why payback period is an inappropriate measure for making an investment decision. (3 pts) 3. You want to value the stock of RealNetworks. The company does not currently pay a dividend, but you expect them to start paying an annual dividend 2 years from today. The dividend in 2 years will be $6 per share, and will grow at the rate of inflation (which is 3% APR, compounded annually). The discount rate for RealNetworks’ stock is 16% APR, compounded annually. What should be the share price of RealNetworks’ stock? (3 pts) If a question asks “why/explain”, you should give a full explanation that would convince a skeptic....
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 Winter '09
 FREEDMAN
 Finance, Net Present Value, PAYBACK PERIOD, RealNetworks

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