Equivalent annual cost of one of these machines

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Q. Utilize the formula for constant growth perpetuity to compute the value of a share of common stock which will pay a 4percent (%) dividend next yr, assuming the opportunity cost K is 15percent (%) also the firm is growing its dividend at a constant rate of 8percent (%) per yr, (based on a return on equity of 10percent (%) also a plowback ratio of 80percent (%)). Elucidate how would the valuation change if the growth rate was 0percent (%)? Illustrate what is the extra value associated with growth? Elucidate how would the valuation change if the opportunity cost rose or fell or if the dividend growth rate increased or decreased, all else remaining the same?

Automated Manufacturers uses high-tech equipment to produce specialized aluminum products for its customers. Each one of these machines costs $1,480,000 to purchase plus an additional $52,000 a yr to operate. The machines have a 6-yr life after which they are worthless. Illustrate what is the equivalent annual cost of one of these machines if the required return is 16 percent?

Reference no: EM1314844

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