Case Study 10 - Effective tax rate: 35% Equity financing...

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Effective tax rate: 35% Equity financing option: Investment Salvage value Annual Cash Flow Initial investment cost: $1,500,000.00 Year - - Revenue Dividend payments Net cash flow Afer-tax NCF Price per share of stock: $15.00 0 $(1,500,000.00) $- $- $- $(1,500,000.00) $(1,500,000.00) Initial dividends on stock: $0.50 1 $- $- $300,000.00 $(50,000.00) $250,000.00 $162,500.00 Dividend growth rate (g): 5% 2 $- $- $300,000.00 $(52,500.00) $247,500.00 $160,875.00 Number of shares: 100000 3 $- $- $300,000.00 $(55,125.00) $244,875.00 $159,168.75 Number of vans: 200 4 $- $- $300,000.00 $(57,881.25) $242,118.75 $157,377.19 Salvage value per van: $1,000.00 5 $- $- $300,000.00 $(60,775.31) $239,224.69 $155,496.05 Total salvage value: $200,000.00 6 $- $- $300,000.00 $(63,814.08) $236,185.92 $153,520.85 7 $- $- $300,000.00 $(67,004.78) $232,995.22 $151,446.89 Annual dividend prices 8 $- $- $300,000.00 $(70,355.02) $229,644.98 $149,269.24 Year Price per share 9 $- $- $300,000.00 $(73,872.77) $226,127.23 $146,982.70
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This note was uploaded on 10/19/2011 for the course MECH 370 taught by Professor Smith during the Spring '11 term at Alfred University.

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