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    Valuation of stock, NPV, IRR, MIRR, Payback

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    A) Valuation of a constant growth stock - A stock is expected to pay a dividend of $0.50 at the end of the year (that is D1 = 0.50), and it should continue to grow at a constant rate of 7 percent a year. If its required return is 12 percent, what is the stock's expected price 4 years from today?

    B) Cost of common equity - EPS was $6.50 in 2005, up from $4.42 in 2000. The company pays out 40 percent of its earnings as dividends, and its common stock sells for $36.
    a. Calculate the past growth rate in earnings. (This is a 5 year growth period).
    b. The last dividend was D0 = 0.4($6.50) = ($2.60). Calculate the next expected dividend, D1, assuming the past growth rate continues.
    c. What is cost of retained earnings, rs?

    C) 1 - NPV - Project K costs $52,125, its expected net cash inflows are $12,000 per year for 8 years, and is WACC is 12 percent. What is the project's NPV?
    1-2 : IRR - Refer to problem 1. What is the project's IRR?
    1-3: MIRR - Refer to problem 1. What is the project's MIRR?
    11-4: Payback period - Refer to Problem 1. What is the project's payback?
    11-5: Discounted payback - Refer to problem 1. What is the project's discounted payback?

    © BrainMass Inc. brainmass.com June 3, 2020, 8:20 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/valuation-of-stock-npv-irr-mirr-payback-133109

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    Solution Summary

    The solution calculates:
    1) The expected price of a stock 4 years from now.
    2) Cost of common equity
    3) NPV, IRR, MIRR, payback period of a project

    $2.19

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