TVM

TVM Assignment Q.1. Please write out the complete formula for the present value PV, of cash flows in the following situations. The discount rate is r. The time 0 cash flow is X. Please draw a timeline to assist in your analysis. a) Cash flows grow at a rate g. The first cash flow is at t=12 and cash flows are paid out forever after that. b) Cash flows grow at a rate gi from years 1 to 5, and then at the rate g2 from years 6 through infinity. Cash flows are paid out starting at t-1. c) Cash flows grow at the rate g1 from years 1 to 5, at the rate g2 from years 6 through 11, and then at the rate g3 from years 12 through infinity. Cash flows are paid out starting at t=1. Q.2. If a firm's last dividend paid (DO) = $2.37 and its required rate of return is 10%, value the stock under different dividend growth pattern assumptions. Please note: The value of a stock can be thought of as the present value of all future dividend payments (starting at time 1). Case 1 - Dividends are expected to grow at 5% forever. Case 2 - Dividends are expected to grow at 12% for four years, then at 3% forever