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

Questions Cloud

Describe how the given costs off-set : Describe how these costs off-set. Discuss the role of "in-kind" donations as a vehicle to decrease costs and/or improve revenue flow.
Compute the cost per equivalent unit for each product : Compute the cost per equivalent unit for each product cost category in department Z for the month of July 2015
Create organizational culture that promotes the prevention : According the text, the fundamental purpose of a compliance plan is to create an organizational culture that promotes the prevention, identification.
Which reform option would have been a good option : There are eight reform options for policy advocates during the reform process. Rank the options based on more easily accomplished to most difficult.
Calculate the intrinsic value of lava development shares : Lava Development Company has maintained stable earnings of $7 per share, Calculate the intrinsic value of Lava Development shares
What is the price of builtrite stock : Reading a stock quote, you see that builtrite pays a $2.50 dividend and has a PE of 16. you also note that builittite pays out one quarter of its earning
What from your problem do you have control over : What from your problem do you have control over and what do you have no control over? Explain your analysis/answer in seven (7) or more sentences.
What rate of return would they be earning : They? don't have the slightest idea what return they would be making on their investment of $17,605.94. What rate of return would they be earning?
Project using the irr method : Determine whether the firm should take the project using the IRR method. Please show all necessary computation including the WACC and make your conclusion.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Which one of following is an example of diversifiable risk

Which one of the following is an example of diversifiable risk?

  Calculate free cash flow from these reported numbers

Free Cash Flow for Kimberley-Clark Corporation (Medium) Below are summary numbers from reformulated balance sheets for 2007 and 2006 for Kimberly-Clark.

  Conduct a trend analysis on best buy financial performance

Conduct a trend analysis on Best Buy's financial performance over five years. Include Best Buy's vision and mission or a brief background of Best Buy's business

  Formulate a model to find the optimal location

TN Communications would like to find the tower location that reaches each of these cities and minimizes the sum of the distances to all locations.

  What will be the approximate expected cash flow

What will be the approximate expected cash flow in year 5, if the project has an Internal Rate of Return of 6%?

  What growth rate is implied in the price

Buffett Acquisition of Burlington Northern Santa Fe (Medium) In 2009, Warren Buffett announced that Berkshire Hathaway would acquire all of the 341 million.

  Why does congress allow tax deferral on the formation of a

Discuss how a taxpayer’s tax basis in property received in a property transaction will be affected based on whether a property transaction results in gain exclusions or gain deferral.

  What is the balance in the account

a. What is the balance in the account after 3years? How much of this balance corresponds to"interest on interest"? b. What is the balance in the account after 29 years? How much of this balance corresponds to "interest on interest?

  Explain how you made the decision to pursue an education

Explain how you made the decision to pursue an education in Business or Finance. Include a summary of expenses related to that decision.

  What is the initial cost of the plant

The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

  Identify the most obvious economic reason for the persistent

Identify the most obvious economic reason for the persistent depreciation of the peso. What would it cost in dollars to purchase PZ 20 million forward three months?

  What is meant by proprietary trading

The Corporation enters into trading derivatives to facilitate client transactions for proprietary trading purposes, and to manage risk exposures arising from trading assets and liabilities.

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