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# l 114.28 Consider a project that costs \$1 million today but yields no returns for several years. Once the project becomes productive, it yields

Please show me the calculation for the above questions

Thanks

l— 114.28 Consider a project that costs \$1 million today but yields no returns for several
years. Once the project becomes productive, it yields \$250,000 annually forever.
Suppose two ﬁrms are examining this project, a Japanese ﬁrm with a cost of capital of
7% and a US. ﬁrm with a cost of capital of 13%. Approximately how many more years
than the US. ﬁrm would the Japanese ﬁrm be willing to wait until the project starts
generating cash?“ a) 14 years« b) 5 years» c) 24 yearsu d) 3 years»

14.29 Assume an average dividend payout rate of 100% for both U.S. and Japanese
companies. Suppose the average P/E ratio for Japanese ﬁrms is 38 and 16 for U.S. ﬁrms.
Based on the dividend growth model, in order for Japanese and U.S. companies to have the same average cost of equity capital, how much higher would the Japanese annual
earnings growth rate have to be?» a) 7.24%.
b) 6.31%.
c) 5.83%. d) 8.39%.

14.30 Assume an average dividend payout rate of 60% for U.S. companies and 35%
for Japanese companies. Suppose the average P/E ratio for Japanese ﬁrms is 38 and 16
for US. ﬁrms. Based on the dividend growth model, in order for Japanese companies
to have the same 12% average cost of equity capital estimated for U.S. companies, how
much higher would the Japanese annual earnings growth rate have to be‘h a) 8.74%.
b) 3.45%.
c) 7.60%“ d) 2.83%“

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