Firms cash flows are in period 1: 11,000, period 2: 14,520 and period 3: 23,958.

Suppose that the firm is traded in a perfect and complete capital market with an interest rate of 10% and all cash inflows are paid out as dividends to the firm owners at the end of each period. 

a) Determine the market prices for the firm in t =1, 2 and 3.

 b) Suppose you have initially invested an amount of 40’000 in t = 0, How much cash flow can be consumed in periods t =1, 2 and 3 if the invested capital should be preserved?

Answer rating: 100% (QA)

a To determine the market prices for the firm in periods t 1 2 and 3 we can use the concept of prese... View the full answer