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?
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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?
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? ...
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