Public Finance (The McGraw-Hill Series in Economics)
10th Edition
ISBN: 9780078021688
Author: Harvey S Rosen, Ted Gayer
Publisher: McGraw-Hill Education
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Dr Z. Mthembu is the owner of Mr Granite, a business in the Western Cape. After more than 28 years of operation, the business is thinking about taking on a new project that would provide a profitable new clientele. With only R1.5 million in resources, the company is now working on two competing projects. The starting costs for Project X and Project Y are R625,000 and R600000, respectively. These projected are estimated for the next 7 years timeframe. According to SARS, the tax rate is 28%, and a discount rate of 11.25% is applied.Projects X Project YProject X Project Y129000 145000154000 145000312000 145000168000 14500098250 14500088750 14500016050 145000
Dr Z. Mthembu is the owner of Mr Granite, a business in the Western Cape. After more than 28 years of operation, the business is thinking about taking on a new project that would provide a profitable new clientele. With only R1.5 million in resources, the company is now working on two competing projects. The starting costs for Project X and Project Y are R625,000 and R600000, respectively. These projected are estimated for the next 7 years timeframe. According to SARS, the tax rate is 28%, and a discount rate of 11.25% is applied.Projects X Project YProject X Project Y129000 145000154000 145000312000 145000168000 14500098250 14500088750 14500016050 145000
An investor buys 100 shares of a $40 stock that pays an annual cash dividend of $2 a share (a 5 percent dividend yield) and signs up for the DRIP.
a. If neither the dividend nor the price changes, how many shares will the investor have at the end of 10 years? How much will the position in the stock be worth?
Answer:
5.000 shares purchased in year 1
5.250 shares purchased in year 2
6.078 shares purchased in year 5
62.889 total shares purchased
b. If the price of the stock rises by 6 percent annually but the dividend remains at $2 a share, how many shares are purchased each year for the next 10 years? How much is the total position worth at the end of 10 years?
Answer:
4.717 shares purchased in year 1
4.592 shares in year 3
3.898 shares in year 10
Value of position: $10,280
c. If the price of the stock rises by 6 percent annually but the dividend rises by only 3 percent annually, how many shares are purchased each year for the next 10 years? How much is the total position worth at the…
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