EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780135160473
Author: KEOWN
Publisher: PEARSON CO
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Chapter 8, Problem 5RQ
Summary Introduction
To compare: Valuing common stock and
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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.
Please solve this question by using appropriate method.
Chapter 8 Solutions
EBK FOUNDATIONS OF FINANCE
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Define investors expected rate of return.Ch. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - (Preferred stock valuation) What is the value of a...Ch. 8 - (Preferred stock valuation) The preferred stock of...
Ch. 8 - Prob. 3SPCh. 8 - Haney, Inc.s preferred stock is selling for 33 per...Ch. 8 - Calculate the value of a preferred stock that pays...Ch. 8 - You are considering an investment in one of two...Ch. 8 - You are considering an investment in Minnix...Ch. 8 - Mosser Corporations common stock paid 1.32 in...Ch. 8 - The Cammack Corporation wants to achieve a steady...Ch. 8 - (Common stock valuation) Dalton Inc., has an 11.5...Ch. 8 - (Common stock valuation) Bates, Inc. pays a...Ch. 8 - You intend to purchase Dorchester common stock at...Ch. 8 - (Common stock valuation) Herrera Motor, Inc. paid...Ch. 8 - (Measuring growth) Given that a firms return on...Ch. 8 - (Common stock valuation) Sanfords common stock is...Ch. 8 - (Common stock valuation) The common stock of NCP...Ch. 8 - (Measuring growth) Septian, Inc.s return on equity...Ch. 8 - Prob. 18SPCh. 8 - Prob. 19SPCh. 8 - (Preferred stockholder expected return) You own...Ch. 8 - (Preferred stock expected return) You are planning...Ch. 8 - (Preferred stockholder expected return) Zust...Ch. 8 - (Preferred stockholder expected return) You own...Ch. 8 - Prob. 24SPCh. 8 - Prob. 25SPCh. 8 - Prob. 26SPCh. 8 - Prob. 27SPCh. 8 - (Common stockholder expected return) Alyward ...Ch. 8 - (Common stockholder expected return) Bennett,...Ch. 8 - (Common stockholder expected return) The common...Ch. 8 - (Common stockholder expected return) The market...Ch. 8 - Prob. 32SPCh. 8 - Prob. 33SPCh. 8 - Prob. 2MCCh. 8 - Assume Emerson Electrics managers expect earnings...Ch. 8 - Prob. 4MC
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