Investor A is thinking about buying Company ABC today and selling it at the end of the fourth year immediately after receiving the 4th dividend. Assuming: After-taxes, Investor A present values the Dividends paid by Company ABC at $230,000 A expects to sell the company (Terminal Value) at EOY 4 for $1,500,000 A pays tax of 20% on capital gains (the difference between the TV and the purchase price) Investor A uses an after-tax discount rate of 9%. What is the highest price investor A would be willing to pay for Company AAA today?
Investor A is thinking about buying Company ABC today and selling it at the end of the fourth year immediately after receiving the 4th dividend. Assuming: After-taxes, Investor A present values the Dividends paid by Company ABC at $230,000 A expects to sell the company (Terminal Value) at EOY 4 for $1,500,000 A pays tax of 20% on capital gains (the difference between the TV and the purchase price) Investor A uses an after-tax discount rate of 9%. What is the highest price investor A would be willing to pay for Company AAA today?
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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Investor A is thinking about buying Company ABC today and selling it at the end of the fourth year immediately after receiving the 4th dividend. Assuming:
- After-taxes, Investor A
present values the Dividends paid by Company ABC at $230,000 - A expects to sell the company (Terminal Value) at EOY 4 for $1,500,000
- A pays tax of 20% on
capital gains (the difference between the TV and the purchase price) - Investor A uses an after-tax discount rate of 9%.
What is the highest price investor A would be willing to pay for Company AAA today?
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