Question 3 Stocks of mature firms that grow at a predictable steady-state rate can sometimes be valued as a present value of a growing perpetuity. It uses next period's cash flow to equity holders (CF1), growth rate(g) and the cost of equity (r) as the discount rate (i.e., PV=CF1/(r-g)). The next period's cash flow to equity is 1250, steady-state growth rate is 2.5% and the cost of equity is 8%. What is the value of the firm's equity? 22,727.27 070.50 795.33
Question 3 Stocks of mature firms that grow at a predictable steady-state rate can sometimes be valued as a present value of a growing perpetuity. It uses next period's cash flow to equity holders (CF1), growth rate(g) and the cost of equity (r) as the discount rate (i.e., PV=CF1/(r-g)). The next period's cash flow to equity is 1250, steady-state growth rate is 2.5% and the cost of equity is 8%. What is the value of the firm's equity? 22,727.27 070.50 795.33
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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Transcribed Image Text:Question 3
Stocks of mature firms that grow at a predictable steady-state rate can
sometimes be valued as a present value of a growing perpetuity. It uses next
period's cash flow to equity holders (CF1), growth rate(g) and the cost of equity
(r) as the discount rate (i.e., PV=CF1/(r-g)). The next period's cash flow to equity
is 1250, steady-state growth rate is 2.5% and the cost of equity is 8%. What is
the value of the firm's equity?
22,727.27
070.50
795.33
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