1. A firm does not pay a dividend. It is expected to pay its first dividend of $0.54 per share in two years. This dividend will grow at 14 percent indefinitely. Use a 15.5 percent discount rate.
2. Compute the value of this stock. (Round your answer to 2 decimal places.)
-0.75
0.50
0.25
Impossible to know
-0.25
3. A company is considering investing in a new product line. The cost of the machine is $11900. Normally, the compay has a 6.00% cost of capital. Because this new product line is more risky, the company has decided to charge an additional risk premium of 1.10%. What is the Net Present Value of the machine if it produces the following cash flows?
Year 1 $6000
Year 2 $4200
Year 3 $3300
Year 4 $2600