You are running a hot Internet company. Analysts predict that its earnings will grow at 30% per year for the next five years. After that, as competition increases, earnings growth is expected to slow to 2% per year and continue at that level forever. Your company has just announced earnings of $1,000,000. What is the
Trending nowThis is a popular solution!
Chapter 4 Solutions
Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Additional Business Textbook Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Foundations Of Finance
Principles of Accounting Volume 2
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
- 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)arrow_forwardYou 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% ?arrow_forwardA 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 yeararrow_forward
- 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.)arrow_forwardAs 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 companyarrow_forwardAssume that the economy can experience high growth, normal growth, or recession. Under these conditions you expect the following stock market returns for the coming year: State of the Economy High Growth Normal Growth Recession. Probabilities 0.2 0.7 0.1 Return +30% +12% -15% 1. Compute the expected value of a $2000 investment over the coming year. If you invest $2,000 today, how much money do you expect to have next year? 2. Compute the standard deviation of the percentage return over the coming year.arrow_forward
- As an analyst, you have gathered the following information on a company you are tracking. The current annual dividend is $0.75. Dividends are expected to grow at a rate of 12% over the next 3 years, and then decline to a 4% over the next 6 years, and then remain at a long term equilibrium growth rate of 4% in perpetuity. The required return is 9%. Calculate the value of the companyarrow_forwardAssume that the economy can experience high growth, normal growth, or recession. Under these conditions, you expect the following stock market returns for the coming year: State of the Economy High Growth Normal Growth Recession Probability 0.2 0.7 0.1 Return 60% 18% 2% a. Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you expect to have next year? What is the percentage expected rate of return? Instructions: Enter dollar values rounded to the nearest whole dollar and percentages rounded to one decimal place. The expected value is $ and the expected rate of return is b. Compute the standard deviation of the percentage return over the coming year. Standard deviation = % = %. c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment? Risk premium %arrow_forwardA 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 Calculatorarrow_forward
- 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 valuearrow_forwardYour 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.arrow_forwardYou are considering investing in ICI. Suppose ICI is currently undergoing expansion and is not expected to change its cash dividend while expanding for the next 4 years. This means that its current annual $3.00 dividend will remain for the next 4 years. After the expansion is completed, higher earnings are expected to result causing a 30% increase in dividends each year for 3 years. After these three years of 30% growth, the dividend growth rate is expected to be 2% per year forever. If the required return for ICI common stock is 11%, what is a share worth today?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT