Nguyen Khanh Son- Finance-chapter 9

Nguyen Khanh Son- Finance-chapter 9 - Name:Nguyen Xuan...

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Name:Nguyen Xuan Thanh Class: Batch 4 Chapter 9 Questions: 9.3 It depends on the company has good investment opportunities in the future or not, if the company has good investment opportunities in the future, the company should retain more earnings (pay less current dividends). Problems: 9-1 Dividend = D 0 = $ 1.5 g 1 = 7% N = 3 years g 2 = 5% We have: D 0 = $1.5 D 1 = D 0 (1+g 1 ) = 1.5 (1+ 0.07) = 1.605 D 2 = D 0 (1+g 1 ) 2 = 1.5 (1+ 0.07) 2 = 1.71735 D 3 = D 0 (1+g 1 ) 3 = 1.5 (1+ 0.07) 3 = 1.8376 D 4 = D 0 (1+g 2 ) = 1.5 (1+ 0.07) = 1.9294 D 5 = D 0 (1+g 2 ) 2 = 1.5 (1+ 0.07) 2 = 2.0259 9-2 D 1 = $ 0.5 g = 7% r = 15% We have: P 0 = D 1 / r-g = 0.5 / (0.15-0.07) = $ 6.25
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9-4 D0 = $ 1.25 g 1 = 20% N = 2 years g 2 = 5% r = 10% a) N = 2 b) P A = PV of horizon value = [(D N+1 ) / (r – g 2 )] / (1 + r) N = {[1.25 (1.2) 2 (1.05)]/ (0.1 – 0.05)} / (1 +0.1) 2 = 31.23 c) P B = D 1 / (1 +r) + D 2 / (1+r) 2 = 1.25(1 + 0.2)/(1 + 0.1) + 1.25 (1 +0.2) 2 / (1 + 0.1) 2 = 2.8512 So we have P 0 = P A +P B = 31.23 + 2.8512 = $34.0812
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This note was uploaded on 11/23/2011 for the course MANAGEMENT 101 taught by Professor Nguyen during the Spring '11 term at Troy.

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Nguyen Khanh Son- Finance-chapter 9 - Name:Nguyen Xuan...

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