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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You are running a Data Analysis Company. You predict that the earnings will grow at 2% per year forever. Your company has just announced earnings of $6.5 million. What is the present value of all future earnings if the interest rate is 9% per year? (Assume all cash flows occur at the end of the year)
You are running a hot Internet company. Analysts predict that its earnings will grow at 30% per year for the next five years (i.e., Year 1 to Year 5). After that, as competition increases, earnings growth is expected to slow to 4% per year and continue at that level forever. Your company has just announced earnings of $4 million. What is the present value of all future earnings if the interest rate is 7% ?
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
2.Your expected income will grow at 6% per year for the next five years. After that your incomegrowth is expected to slow to 3% per year and continue at that level forever. Your currentincome is AED 500,000. What is the present value of all future earnings if the interestrate is 8%? (Assume all cash flows occur at the end of the year.)
A company expects dividends to grow at 18 percent per year for the next 10 years before leveling off at 4 percent forever. The required rate of return on the company’s stock is 10 percent. If the dividend per share just paid was $2, what is the stock price? (Hint: the dividends paid in the next 10 years can be regarded as a growing annuity, which we learned in Chapter 6.) Please use a HP 10bii+ Financial Calculator
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
Your consulting firm will produce cash flows of $145,000 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 6.9%, and you anticipate inflation of about 2.9%. 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 $ Present value 279,013.75 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.
Company A is a worldwide delivery company that is expected to generate a dividend (per share) of $1.40 one year from now (i.e. at t=1). You are expecting that on average Company A's dividends will grow at 5% each year after that into the indefinite future. Assume for simplicity that all dividends are paid at the end of each year. Suppose that the appropriate discount rate for these dividends is 10%. a. What is the current stock price for Company A? Assume that any dividend at t=0 has already been paid out. b. What do you expect the stock price of Company A to be next year (i.e. at t=1) immediately after the dividend has been paid out? c. What is the expected return for holding the stock of Company A over the year ahead? Hint: Find the IRR on the expected cash flows from buying and holding the stock for one year. The cash flows should include the purchase and sale of the stock as well as the dividend you will receive
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
Suppose you have $100,000 cash today and you can invest it to become a millionaire in 15 years. What is the present purchasing power equivalent of this $1,200,000 when the average inflation rate over the first seven years is 7% per year, and over the last eight years it will be 8% per year? Please solve this problem using excel spreadsheet.
Starkiller Base Inc. expects to have a changing dividend policy over the next few years starting with the dividend that they just paid of $4.17. In the following year their dividend will grow by 24.3% and in the year after by 18.4%. Following that they expect their dividends to continue growing at a constant rate of 4.4% forever. If the required rate of return for Starkiller Base is 11.6% per year, what is the price today of their shares?

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