You are running a hot Internet company. Analysts predict that its earnings will grow at 20% per year for the next 9 years. After that, ascompetition increases, earnings growth is expected to slow to 4% per year and continue at that level forever. Your company has just announcedearnings of $4 million. What is the present value of all future earnings if the interest rate is 9%? (Assume all cash flows occur at the end of the year.)The present value of all future earnings ismillion. (Round to two decimal places.)

Step 1: Given Value for Calculation Current Year earnings = e = $4 millionGrowth rate for first 9…

Answered: You are running a hot Internet company.…

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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A company predicts that the earnings will grow at 1% per year forever. Today, the company announced earnings of $4 million. What is the present value of all future earnings if the interest rate is 6% per year? This is assuming all cash flows occur at the end of the year
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Your consulting firm will produce cash flows of $190,000 this year, and you expect cash flows thereafter to keep pace with any increase in the general level of prices. The interest rate currently is 5.2%, and you anticipate inflation of about 1.2%. a. What is the present value of your firm's cash flows for years 1 through 5? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Present value b. How would your answer to (a) change if you anticipated no growth in cash flow? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Present value
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As an analyst, you have gathered the following information on a company you are tracking. The current annual dividend is $1.75. Dividends are expected to grow at a rate of 14% over the next 4 years, and then decline linearly to 5% over the next 7 years, and then remain at a long term equilibrium growth rate of 5% in perpetuity; the required return is 10%. Calculate the value of the company
Nikul
In 10 years a firm will have annual cash flows of 100 million. Thereafter, its cash flows will grow at an inflation rate of 3%. if the applicable interest rate is 8%, estimate its value if you will sell the firm in 10 years? what would this be worth today? show your work
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