WeTechies Limited earnings and dividends are expected to grow at a rate of 15% per year during
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Question:
a. Calculate D0 and D1.
a. Calculate P4 and P5.
b. If you buy WeTechies stock 4 years from today, and sell it after keeping for one year, what will your dividend yield, capital gains yield, and total yield be?
QUESTION 2:
Comfort Plus is building a factory that can make 10,000 massage chairs per year for 5 years. The factory will cost $10,000,000. In year 1 Comfort Plus will sell chairs for $1,020 each in nominal terms. The price will rise at 3% each year in real terms. During the first year, variable cost will be $408 in nominal terms and will rise by 2% per year in real terms. ComfortPlus will depreciate the factory at a CCA rate of 20%. ComfortPlus will sell the factory for $2,208,162 in nominal terms (or $2,000,000 in real terms) at the end of year 5. The nominal discount rate is 15%. The rate of inflation is 2%. Cash flows except the initial investment occur at the end of the year. The corporate tax rate is 40%. What is the NPV of this project?
QUESTION 3:
ABC Technologies is considering the following three machines to make widgets.
1. Machine X costs $1,000,000, has 6 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $400,000 (excluding CCATS) per year.
2. Machine Y costs $2,000,000, has 10 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $600,000 (excluding CCATS) per year.
3. Machine Z costs $3,000,000, has 12 year economic life and a salvage value of $200,000. It will generate before tax cash flow of $790,000 (excluding CCATS) per year
Whichever machine ABC purchases, it will keep repurchasing it forever. CCA rate is 30%, the corporate tax rate is 40% and the required rate of return is 15%.
Related Book For
Managerial Accounting Creating Value in a Dynamic Business Environment
ISBN: 978-0078110917
9th edition
Authors: Ronald W. Hilton
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