ADM 2350 Fall 2007 Assign 2 Solns

# ADM 2350 Fall 2007 Assign 2 Solns - ADM 2350 SECTIONS A B C...

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ADM 2350 SECTIONS A, B, & C FINANCIAL MANAGEMENT Fall 2007 Assignment #2 Revised Solutions GENERAL INSTRUCTIONS: This assignment is due at the beginning of the lab on Wednesday, October 10, 2007 for Section C and Friday, October 12, for Sections A & B. It is your responsibility to hand in your assignment directly to the tutor for lab associated with the section in which you are registered. Please do not hand in your assignment in the wrong lab or to the professor. This assignment counts 5% of your course grade. You are encouraged to work on this assignment in teams of up to 5 students from the same section of this course. However, you may turn in an individual assignment if you prefer. Each assignment must be typed and contain the student name(s) and student number(s) on each page. A statement of integrity must be attached to each assignment. Each individual whose name appears on the assignment must sign the statement of integrity. See page 8 of the course syllabus for the statement of integrity. 1. The Dwindling Reserves Oil Company (DROC) expects to pay a dividend of \$10 in fiscal 2008. DROC expects its dividends to grow at the compounded rate of 10% per year from the fiscal 2008 level for fiscal years 2009 through 2012. DROC then expects to dividends to remain at the fiscal 2012 level for the years fiscal 2013, 2014, and 2015. Thereafter, DROC expects to cut dividends at a compounded rate of 10 percent per year from the fiscal 2015 level for the foreseeable future. Shareholders feel that the required rate of return is 10 percent. a. What is a fair market share price for DROC at the beginning of the fiscal year 2016? If the beginning of fiscal year 2008 is time t = 0, then the beginning of fiscal year 2016 is t = 8 and the end is t = 9. where g k D P e , 9 8 - = , 1769 . 13 \$ ) 9 . 0 ( ) 1 . 1 ( 10 \$ 4 9 = = D and k e , 1 . 0 = 1 . 0 - = g 88 . 65 \$ 8845 . 65 \$ 2 . 0 1769 . 13 \$ ) 1 . 0 ( 1 . 0 1769 . 13 \$ 8 2245 = = - - = P 1/8 marks correct expression for D 9 1/8 marks correct value for D 9 1/8 marks correct expression for P 8 1/8 marks correct value for P 8 If students round D 9 to \$13.18, they will obtain \$65.90 for P 8 . This is acceptable. www.gestion.uottawa.ca / www.management.uottawa.ca

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b. What is a fair market share price for DROC at the beginning of the fiscal year 2013? 3
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## This note was uploaded on 09/13/2011 for the course ADM 2350 taught by Professor Ronda during the Fall '11 term at University of Ottawa.

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ADM 2350 Fall 2007 Assign 2 Solns - ADM 2350 SECTIONS A B C...

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