Answer:
A. D1 = 1.50*1.06 = 1.59
D2 = 1.59*1.06 = 1.69
D3 = 1.69*1.06 = 1.79
B. PV of D1=(1.50*1.06)/1.13^1=1.41
PV of D2=(1.50*1.06^2)/1.13^2=1.32
PV of D3=(1.50*1.06^3)/1.13^3=1.24
PV of all dividend = (1.50*1.06)/1.13^1 + (1.5*1.06^2)/1.13^2 + (1.5*1.06^3)/1.13^3
PV of all dividend = 1.59/1.13 + 1.6854/1.2769 + 1.786524/1.442897
PV of all dividend = 1.407079646 + 1.319915 + 1.238150748
PV of all dividend = 3.965145814288893
PV of all dividend = 3.97
C. PV = 27.05/(1+13%)^3
PV = 27.05/(1.13)^3
PV = 27.05/1.442897
PV = 18.74701
PV = 18.75
D. The most you should pay for it
:
= (1.50*1.06)/1.13^1+(1.5*1.06^2)/1.13^2+(1.5*1.06^3)/1.13^3+27.05/1.13^3
=22.71
E. Value = (1.50*1.06)/(13%-6%)
Value = 1.59 / 7%
Value = 1.59 / 0.07
Value = 22.714286
Value =22.71
F. No, the value is not dependent on the holding period, you can see from above that the value of infinite time period estimated in E equals to the value calculated when there was 3 years holding period.
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Answer:
c. decreases the value of its bonds
Explanation:
There is a significant decrease in the value of the bond if the firm declares bankruptcy.
The expenditure incurred prior to the incorporation of an enterprise is to be considered as a pre-incorporation capital expenditure. The expenditure incurred prior to the 'setting-up of business' is to be considered as a pre-operative capital expenditure.
