6. John and Sally have been encouraged to acquire new clients in local businesses. They have...

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6. John and Sally have been encouraged to acquire new clients in local businesses. They have been called in as consultants for a restaurant, Chop Chop Suey. This fusion restaurant chain moved to a new location on University Blvd., hoping to profit by the number of students wanting something other than burgers and fries at a reasonable price. Unfortunately, CCS underestimated the competition from the plethora of fast- food alternatives within walking distance from the dorms. Sales, while modest, are level and enable the corporation to pay out a steady dividend of $1.75 per share. This dividend is expected to be maintained indefinitely. CCS's biggest challenge is financing. Due to increased amounts and costs of loans, they will be subject to higher costs of capital. Currently their cost of capital is 5%, and they expect that they can lock into that cost for the next two years. They believe that the cost of capital will increase in year 3 to 8.00% and remain at that level for two years. In year 5 they will be subject to a 10% cost of capital, which is expected to hold indefinitely. a. Find the value of CCS's stock in years 3 and 5. b. Find the value of CCS's stock today. SHOW CORRECT AND COMPLETE TIMELINES. SHOW AND CALCULATE USING FOUR DECIMAL PLACES. USE THE UNEVEN CASH FLOW METHOD FOR VALUATION. 6. John and Sally have been encouraged to acquire new clients in local businesses. They have been called in as consultants for a restaurant, Chop Chop Suey. This fusion restaurant chain moved to a new location on University Blvd., hoping to profit by the number of students wanting something other than burgers and fries at a reasonable price. Unfortunately, CCS underestimated the competition from the plethora of fast- food alternatives within walking distance from the dorms. Sales, while modest, are level and enable the corporation to pay out a steady dividend of $1.75 per share. This dividend is expected to be maintained indefinitely. CCS's biggest challenge is financing. Due to increased amounts and costs of loans, they will be subject to higher costs of capital. Currently their cost of capital is 5%, and they expect that they can lock into that cost for the next two years. They believe that the cost of capital will increase in year 3 to 8.00% and remain at that level for two years. In year 5 they will be subject to a 10% cost of capital, which is expected to hold indefinitely. a. Find the value of CCS's stock in years 3 and 5. b. Find the value of CCS's stock today. SHOW CORRECT AND COMPLETE TIMELINES. SHOW AND CALCULATE USING FOUR DECIMAL PLACES. USE THE UNEVEN CASH FLOW METHOD FOR VALUATION.

Answer rating: 100% (QA)

To calculate the value of CCSs stock we need to use the present value formula PV CF11r1 CF21r22 CF31... View the full answer