A company was formed to undertake a specific project that had a limited life. An annual...
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A company was formed to undertake a specific project that had a limited life. An annual dividend of $4.35 has just been paid. Dividends are expected to grow at 12% p.a. for the next seven years (till t=7) and they will fall by 3% p.a. for the following 12 years (till t=19). The project that the company has taken then ends and the company then closes down with no further payments to shareholders. a. What is the share price if the shares are valued at 11.20%? [8] b. Why would anyone purchase a share at t=8 if the share price is expected to fall with the company eventually closing down at t=19? [3] A company was formed to undertake a specific project that had a limited life. An annual dividend of $4.35 has just been paid. Dividends are expected to grow at 12% p.a. for the next seven years (till t=7) and they will fall by 3% p.a. for the following 12 years (till t=19). The project that the company has taken then ends and the company then closes down with no further payments to shareholders. a. What is the share price if the shares are valued at 11.20%? [8] b. Why would anyone purchase a share at t=8 if the share price is expected to fall with the company eventually closing down at t=19? [3]
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a Cost 112000 Cash flows Year Discounted CF Cash flow1costyear Cumu... View the full answer
Related Book For
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
Posted Date:
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