Value of the stock according to the dividend discount model

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Reference no: EM13726177

1. A firm purchases a new machine for $100,000. The machine will be depreciated over 5 years at $20,000 per year. The tax rate is 30%. What is the time 0 cash flow associated with the machine purchase?

2. Assume you find the following information for the year 2014 in a firm’s income statements

EBIT: $40,000

Tax rate: 30%

Depreciation (of existing machinery): $10,000

Calculate the relevant cash flow for this firm for the year 2014.

3. Stock A has an expected dividend of $1.30 payable as of two years from now (i.e. it is not expected to pay any dividends over the first two years). After that, dividends are expected to grow at an annual rate of 1% forever. If the discount rate is 5%, what is the value of the stock according to the dividend discount model?

4. What is the present value of a zero-coupon bond with five years maturity, a nominal value of $1,000 and a discount rate of 6%?

Reference no: EM13726177

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