CorpCo is a large manufacturing firm with many stockholders. A. What is the principal goal of a
Question:
CorpCo is a large manufacturing firm with many stockholders.
A. What is the principal goal of a firm like CorpCo? As a managerial economist how would you define an ‘optimal decision’ for a firm?
B. The firm is considering investing $300,000 for a period of five years. Expected earnings are $50,000 in year 1, $60,000 in year 2, $75,000 in year 3 and $90,000 in years 4 and 5. Should the firm decide to invest, if the interest rate is 8%?
C. The firm paid a dividend of $6 during the past year and it estimates dividends to grow at 7% annually in the future. Firm’s stockholders require a rate of return of 14%. What would be the expected value of each share today?
D. Which are the two basic risks affecting returns when shareholders value any business? Briefly explain.
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates