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# NPV/IRR/Stock valuation

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6. What would you pay today for a stock that is expected to make a \$1.50 dividend in one year if the expected dividend growth rate is 3% and you require a 16% return on your investment?

7. A project costs \$475 and has cash flows of \$100 for the first three years and \$75 in each of the project's last five years. What is the payback period of the project?

8. What is the NPV of a project that is expected to pay \$10,000 a year for 7 years if the initial investment is \$40,000 and the required return is 15%?

9. Suppose a project costs \$300 and produces cash flow of \$100 over each of the following six years. What is the IRR of this project?

10. A firm's stock has a required return of 10%. The stock's dividend yield is 6%. What dividend did the firm just pay if the current stock price is \$40?

https://brainmass.com/economics/investments/npv-irr-stock-valuation-219501

#### Solution Preview

6. What would you pay today for a stock that is expected to make a \$1.50 dividend in one year if the expected dividend growth rate is 3% and you require a 16% return on your investment?
Use the dividend discount model to calculate the price
Price = D1/(Ke-g) where
D1 = expected dividend = \$1.50
Ke = required return = 16%
g = growth rate = 3%
Price = 1.50/(16%-3%) = \$11.54
7. A project costs \$475 and has cash flows of \$100 for the first three years and \$75 in each of the project's last five years. What is the payback period of the project? ...

#### Solution Summary

The solution explains some questions relating to NPV, IRR and stock valuation

\$2.19