ESSENTIAL OF CORP FINANCE W/CONNECT
8th Edition
ISBN: 9781259903175
Author: Ross
Publisher: MCG CUSTOM
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Textbook Question
Chapter 7, Problem 7.1DCQ
What is a “target price” on a stock? How is it determined?
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Question Three
A company needs $10,000 in 5 years to replace a piece of equipment. How much must
be invested now at an interest rate of 8% p.a. compounded daily in order to provide
for this replacement?
Year
Free Cash Flow (FCF)
0
-$17,000,000
1
$4,980,000
2
$4,980,000
3
$4,980,000
4
$4,980,000
5
$6,980,000
The Net Present Value at a discount rate of 15%:
Present Value (PV) for each year:
PV(Year 1) = $4,980,000 ÷ (1 + 0.15)^1 = $4,330,435.
PV(Year 2) = $4,980,000 ÷ (1 + 0.15)^2 = $3,765,590.
PV(Year 3) = $4,980,000 ÷ (1 + 0.15)^3 = $3,274,426.
PV(Year 4) = $4,980,000 ÷ (1 + 0.15)^4 = $2,847,328.
PV(Year 5) = $6,980,000 ÷ (1 + 0.15)^5 = $3,477,617.
Sum of PVs = $4,330,435 + $3,765,590 + $3,274,426 + $2,847,328 + $3,477,617 = $17,695,396.
Initial Investment = $17,000,000.
NPV = Total PV - Initial Investment = $17,695,396 - $17,000,000 = $695,396.
Calculate The Internal Rate of Return
Please solve this question by using appropriate method.
Chapter 7 Solutions
ESSENTIAL OF CORP FINANCE W/CONNECT
Ch. 7 - What are the relevant cash flows for valuing a...Ch. 7 - Does the value of a share of stock depend on how...Ch. 7 - What is the value of a share of stock when the...Ch. 7 - What is a target price on a stock? How is it...Ch. 7 - Prob. 7.2ACQCh. 7 - Prob. 7.2BCQCh. 7 - Why is preferred stock called preferred?Ch. 7 - Prob. 7.3ACQCh. 7 - Prob. 7.3BCQCh. 7 - Prob. 7.3CCQ
Ch. 7 - Prob. 7.3DCQCh. 7 - Prob. 7.1CCh. 7 - Prob. 7.2CCh. 7 - LO1 7.1.Stock Valuation. Why does the value of a...Ch. 7 - LO1 7.2.Stock Valuation. A substantial percentage...Ch. 7 - Dividend Policy. Referring to the previous...Ch. 7 - LO1 7.4.PRINTED BY: V.SwathiPpfeya@spi-global.com....Ch. 7 - LO1 7.5.Common versus Preferred Stock. Suppose a...Ch. 7 - Prob. 6CTCRCh. 7 - Prob. 7CTCRCh. 7 - LO1 7.8.Dividends and Earnings. Is it possible for...Ch. 7 - Prob. 9CTCRCh. 7 - Prob. 10CTCRCh. 7 - Prob. 11CTCRCh. 7 - Prob. 12CTCRCh. 7 - Prob. 13CTCRCh. 7 - Prob. 14CTCRCh. 7 - Prob. 1QPCh. 7 - Prob. 2QPCh. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Prob. 5QPCh. 7 - Prob. 6QPCh. 7 - Prob. 7QPCh. 7 - Prob. 8QPCh. 7 - Prob. 9QPCh. 7 - Prob. 10QPCh. 7 - Prob. 11QPCh. 7 - Prob. 12QPCh. 7 - Prob. 13QPCh. 7 - Prob. 14QPCh. 7 - Prob. 15QPCh. 7 - Prob. 16QPCh. 7 - Prob. 17QPCh. 7 - Prob. 18QPCh. 7 - Prob. 19QPCh. 7 - Prob. 20QPCh. 7 - Prob. 21QPCh. 7 - Prob. 22QPCh. 7 - Prob. 23QPCh. 7 - Prob. 24QPCh. 7 - Prob. 25QPCh. 7 - Prob. 26QPCh. 7 - Prob. 27QPCh. 7 - Prob. 28QPCh. 7 - Prob. 29QPCh. 7 - Prob. 30QPCh. 7 - Prob. 31QPCh. 7 - Prob. 32QPCh. 7 - Prob. 1CCCh. 7 - Prob. 2CC
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