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Dave Inc. recently hired you as a consultant to handle project valuation. You have obtained the following information. The firm has 2 million shares of common stock outstanding. The common stock just paid a dividend of $1. It is expected to grow by 30% per year for the next 2 years. After that, the dividend is expected to grow at a constant rate of 5% per year forever. The market value of debt is $20 million. The current risk-free rate is 3% and the market premium is 10%. The company’s equity beta is 1.4 and the corporate tax rate is 35%.
a. What is Dave’s current stock price per share?
b. What is the company’s WACC?
c. Suppose you have a project that’s going to cost $7 million initially, and it will generate cash flow of $1.5 million every year for 6 years, starting from year 3. Assume the project is as risky as the firm, will you take it?
Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2007-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best ans..
The current spot price of a stock is $21, the expected rate of return of the stock is 11%, and the volatility is 12%. The risk-free rate is 5%. Compute the price of a derivative whose payoff in 5 months is ln(S5/12) + 32, where S5/12 is the stock pri..
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Suppose that you buy a one year discount bond that has a maturity value of $10,000 and the risk free market rate is 3 percent. What is the highest price that you would be willing to pay for this bond? Provide a concise theoretical definition of mone..
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How long would it take the 401K to reach $100,000, if the compound average annual rate of return is 6.5% a year?
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