Calculate the intrinsic value of lava development shares

Assignment Help Finance Basics
Reference no: EM132185277

Question - Lava Development Company has maintained stable earnings of $7 per share, and has also maintained a 100% payout policy. Recently, Lava has decided to start a new line of business to develop luxury housing with scenic views of active volcanoes. The new line will require Lava to change to a policy of retaining 30% of its earnings for the foreseeable future. You estimate that with the new line of business that dividends will grow by 2% per year in perpetuity (after next year). Lava's current discount rate is 12%.

a. Calculate the intrinsic value of Lava Development shares?

b. Calculate Lava's net present value of growth opportunities?

Reference no: EM132185277

What is the maximum profit and the maximum loss

An investor purchases 200 shares of XYX stock for $55.00 a share and immediately sells 2 covered call contracts at a strike price of $60.00 a share. The premium is $3.00 a s

Item would affect a company''s ability to attract new capital

How do you think each of the following items would affect a company's ability to attract new capital and the flotation costs involved in doing so?a. A decision of a privately

Fundamentals of effective communication in the workplace

Effective communication skills are essential in the workplace. Some businesses invest in training their employees on how to effectively communicate, because effective commun

Explain the primary goal of portfolio diversification

Explain the primary goal of portfolio diversification as it relates to asset allocation and correlation. Foreign securities are generally considered to be more risky than dome

Supporting a culture of innovation

In Innovation as Usual: How to Help Your People Bring Great Ideas to Life (2013), Miller and Wedell-Wedellsborg discuss the importance of establishing systems within organiz

Transactions executed to achieve the maximum benefit

What type of transaction should you execute to achieve the maximum benefit?- Demonstrate that your strategy is correct by constructing a payoff table showing the outcomes of e

Remaining loan amount necessary to sell

A truck costing $112000 is paid off in monthly installments over four years with 8% APR. After three years the owner wishes to sell the truck. What is the closest amount fro

What is the monthly rate of interest

Raymond borrowed $3,000.00 from Loans R Us Company. The line of credit agreement provided for repayment of the loan in equal monthly payments of $668.76 which includes inter


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd