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

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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
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:
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

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