
a.
To determine: The expected dividends for year 1, 2 and 3.
a.

Answer to Problem 12QP
The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.
Explanation of Solution
Determine the expected dividends for year 1, 2 and 3
Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.
b.
To determine: The selling price of stock.
b.

Answer to Problem 12QP
The selling price of stockis $13.
Explanation of Solution
Determine the selling price of stock
Therefore, the selling price of stockis $13.
c.
To determine: The projected stock price three years from now.
c.

Answer to Problem 12QP
The projected stock price three years from nowis $14.62.
Explanation of Solution
Determine the projected stock price three years from now
Therefore, the projected stock price three years from nowis $14.62.
d.
To determine: The projectedcash flows for years 1, 2 and 3.
d.

Answer to Problem 12QP
The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.
Explanation of Solution
Determine the projected cash flows for years 1, 2 and 3
The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,
Therefore, the cash flows for year 3 is $15.75.
e.
To determine: The
e.

Answer to Problem 12QP
The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.
Explanation of Solution
Determine the cash flows for year 1, 2 and 3
Excel Spreadsheet:
Excel Workings:
Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.
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Chapter 7 Solutions
FUNDAMENTALS OF CORP.FIN.(LL)-W/CONNECT
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