MBAA 518 PROBLEM SET 3 DOWNLOAD Question 1 10 / 10 pts DBP Inc. just paid a dividend of $2.50. The expected growth rate of dividend is 5 percent. The required return for investors in the first three years is 12 percent and 10 percent for the following three years. After those six years the required return is 8 percent. What is the current share price of the stock? $74.94 Correct $73.00
$70.74
Question 2 15 / 15 pts Ernie Manufacturing has projected sales of $155 million next year. Costs are expected to be $100 million and net investment is expected to be $17.5 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 percent where it will remain. There are 5.5 million shares of stock outstanding. Investors require a return of 13 percent and the corporate tax rate is 40 percent. What is your estimate of the current stock price? $47.39 Correct!! $43.59
$14.43
Question 3 Given the following cash flows and a discount rate of 12 percent, calculate the NPV. Year 0 1 2 3 4 5 -100000 20000 22500 25000 27500 30000 - $11,911.90
$11,607.14