Homework Answers
| stock | |||
| Discount rate | 0.12 | ||
| Year | 0 | 1 | 2 |
| Cash flow stream | 0 | 0.64 | 38.64 |
| Discounting factor | 1 | 1.12 | 1.2544 |
| Discounted cash flows project | 0 | 0.571429 | 30.80357 |
| NPV = Sum of discounted cash flows | |||
| NPV stock = | 31.38 | ||
| Where | |||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||
at current price of 34 stock is over priced
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