Intermediate step Current stock price 2250 g 600 F 500 r e D 1 P 1 F g 1243

Intermediate step current stock price 2250 g 600 f

This preview shows page 11 - 13 out of 13 pages.

Intermediate step Current stock price $22.50 g 6.00% F 5.00% r e = D 1 /(P 0 *(1 – F)) + g 12.43% xxvii . (Comp: 11.2,11.8) NPV and payback--nonalgorithmic First, find the missing t = 0 cash flow. If payback = 2.5 years, this implies that the t = 0 cash flow must be CF 0 + $2,000 + $3,000 + (0.5)$3,000 = 0, so CF 0 = -$2,000 – $3,000 – (0.5)$3,000 = -$6,500. Then NPV = -$6,500 + 12 . 1 000 , 2 $ + 2 ) 12 . 1 ( 000 , 3 $ + 3 ) 12 . 1 ( 000 , 3 $ + 4 ) 12 . 1 ( 500 , 1 $ = $765.91 xxviii . (11.6) MIRR (constant cash flows; 3 years) WACC: 10.00% Year: 0 1 2 3 Cash flows: -$800 $350 $350 $350 TV = Sum of compounded inflows: Compounded values, FVs: $423.50 $385.00 $350.00 $1,158.50 MIRR = 13.14% Found as discount rate that equates PV of TV to cost, discounted back 3 years @ 10% MIRR = 13.14% Alternative calculation, using Excel's MIRR function xxix . (8.5) Constant growth valuation
Image of page 11
D 0 $1.75 r s 12.0% g 4.0% D 1 = D 0 (1 + g) = $1.82 Intermediate step used to find answer P 0 = D 1 /(r s – g) $22.75 xxx . (8.5) Constant growth dividend Stock price $25.00 Required return 11.50% Growth rate 7.00% P 0 = D 1 /(r s – g), so D 1 = P 0 (r s – g) = $1.13 Intermediate step Last dividend = D 1 /(1 + g) $1.05 xxxi . (7.5) Required rate of return IP: 4.00% Real rate: 3.00% RP M : 5.00% Beta: 1.00 Required return = 3% + 4% + 1.0(5%) = 12.00% xxxii . Use CAPM to determine the market risk premium with data given r s = r RF + RP M × b Stock 12.60% = 5.00% + RP M × 1.49 7.60% = RP M × 1.49 5.10% = RP M xxxiii . N 6 PV $1,150 PMT $85 FV $1,000 Current yield = 7.39% xxxiv . EPS $3.50 BVPS $22.75 Shares outstanding 215,000 Debt ratio 46.0% Total equity $4,891,250 Total assets $9,057,870 Total debt $4,166,620 xxxv . (2.17) Loan amortization: interest Find the required payment:
Image of page 12
N 10 I 7.0% PV $75,000 FV $0 PMT $10,678.31 Amortization schedule (first 2 years) Year Beg. Balance Payment Interest Principal End. Balance 1 75,000.00 10,678.31 5,250.00 5,428.31 69,571.69 2 69,571.69 10,678.31 4,870.02 5,808.29 63,763.39
Image of page 13

You've reached the end of your free preview.

Want to read all 13 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture