2. The DAP Company has decided to make a major investment. The investment will require a substantial early cash out-flow, and inflows will be relatively late. As a result, it is expected that the impact on the firm's earnings for the first 2 years will be a negative growth of 5% annually. Further, it is anticipated that the firm will then experience 2 years of zero growth after which it will begin a positive annual sustainable growth of 6%. If the firmis cost of capital is 10% and its current dividend (DO) is $2 per share, what should be the current price per share?

2. The DAP Company has decided to make a major investment. The investment will require a substantial early cash out-flow, and inflows will be relatively late. As a result, it is expected that the impact on the firm's earnings for the first 2 years will be a negative growth of 5% annually. Further, it is anticipated that the firm will then experience 2 years of zero growth after which it will begin a positive annual sustainable growth of 6%. If the firmis cost of capital is 10% and its current dividend (DO) is $2 per share, what should be the current price per share?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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6
Shabbona Partners expects to have free cash flows of $38,950,000 next year, and free cash flows are expected to grow at a constant rate of 3% per year. If the firm's WACC is 9% per year, what is the value of Shabbona's operations?
Problem 10-1 Zenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NOI will be as follows: Year NOI 1 $ 1,285,000 2 1,285,000 3 1,285,000 4 1,295,000 5 1,345,000 6 1,395,000 7 1,434,000 8 1,474,170 A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,285,000. During years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI will tend to reflect a stable, balanced market should grow at 3 percent per year indefinitely. Zenith believes that investors should earn a 12 percent return (r) on an investment of this kind. ?
DeltaCo has a payout ratio of 0.6 and it reinvests the remainder of earnings in new projects. If next year's EPS (EPS1) will be $7.18, new projects have expected return of 15%, and investors require a rate of return is 10.8%, what is the present value of the firm's growth opportunities? Round your answer to the nearest penny.
Scenarios: You work in the macroeconomic research department of an investment bank. Based on your modelling of the economy, you think that in the next few months US GDP will evolve according to three basic scenarios: Scenario A: GDP will rise 3%. This will send the S&P ETF to 414. Scenario B: GDP will stagnate. S&P ETF will stay at 407. Scenario C: GDP will fall 2%. This will send the S&P ETF to 400. Question 1: Compute the payoff and net payoff of a bear spread strategy built with put options in the three scenarios above. The put options should have strikes 405 and 409 and mature in February. Draw the profile of the bear spread strategy. Use the data in Table 2. Please show your calculations. Discuss your result.
a) One of the touted advantages of an ERM system is the stabilization of revenuethat results in shareholders valuing the business highly on the markets. Assumea firm has operating free cash flows of K300 million, which is expected to grow at13% for four years. After four years, it will return to a normal growth rate of 8%.Assuming that the weighted average cost of capital is 12%. Calculate the valueof the firm. b) A project has a worked out IRR of 15%. Would you advise the companyto undertake this project at its current WACC? Give reasons for youranswer.
Scenarios: You work in the macroeconomic research department of an investment bank. Based on your modelling of the economy, you think that in the next few months US GDP will evolve according to three basic scenarios: Scenario A: GDP will rise 3%. This will send the S&P ETF to 414. Scenario B: GDP will stagnate. S&P ETF will stay at 407. Scenario C: GDP will fall 2%. This will send the S&P ETF to 400. Question 3 You build an “Iron Condor” strategy with February maturity combining the following positions: a long put at 405 a short put at 406 a short call at 408 a long call at 409 Draw the payoff and net payoff of the Iron Condor strategy. Compute the payoff and net payoff of this strategy in the three scenarios. Use the data in Table 2. Please show your calculations. Discuss your result.
i need help in this thanku
HP S/ n is entering into 3 yrs remodelling and expansion project. The construction will have a limiting effect on earning during that time ,but when completed ,it sholud allow the company to enjoy much improved growth in earning and dividends .last year ,the company paid a dividend of rm3.40 .it expect zero growth in the next year .in year 2 &3, 5% growth sholud be a constant 10% per year.what is the maximum price share that an investor who require a return of 14% sholud pay for HPH common stock?
None

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