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SpreadSpreadsheets are especially useful for computing stock value under different assumptions. Consider a firm that is expected to pay the following dividends:
Year 1 2 3 4 5 6
$1.20 $1.20 $1.50 $1.50 $1.75 $1.90 and grow at 5 percent thereafter
A. Using an 11 percent discount rate, what would be the value of this stock?
B. What is the value of the stock using a 10 percent discount rate? A 12 percent discount rate?
C. What would the value be using a 6 percent growth rate after year 6 instead of the 5 percent rate using each of these three discount rates?
D. What do you conclude about stock valuation and its assumptions?
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devise a hypothetical business situation in which buying a lookback call option on a commodity may be a sound strategy
A. What are the IRRs of the two projects? B. If your discount rate is 5.1%, what are the NPV's of the two projects? C. Why do IRR and NPV rank the two projects differently?
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