Answer:
$5.50
Explanation:
For computing the value of stock, first we have to determine the dividend at the end of the third year which is shown below:
= last year dividend × (1 + growth rate) ÷ (cost of capital - growth rate)
= $1 × ( 1 - 0.02) ÷ (0.17 +0.02)
= $0.98 ÷ 0.19
= $5.16
The computation of the value of stock is shown below:
Year Dividend Present value factor at 17% Present value
1 $1.06 0.8547 $0.91
2 $1.02 0.7305 $0.75
3 $1 0.6244 $0.62
3 $5.16 0.6244 $3.22
Total present value $5.50
The present value factor is computed below:
= 1 ÷ (1 + rate) ^ years
For Year 1 = 1 ÷ 1.17^1 = 0.8547
For Year 2 = 1 ÷ 1.17^2 = 0.7305
For Year 3 = 1 ÷ 1.17^2 = 0.6244
Answer:
b. The internal rate of return on the project is less than 12%
Explanation:
Net present value = present value - amount invested
$225,000 - $210,000 = $15,000
The IRR is the discount rate that equates the after tax cash flows from an investment to the amount invested .
$225,000 / (1 + IRR) = $210,000
IRR = 7.14%
The IRR is less than the desired rate of return.
I hope my answer helps you.
The main purpose of a balance sheet is to show a business's financial position.
The correct answer will be the B financing new business ventures.
Entrepreneurship involves financing new business ventures.