Question

13,14,15

313750 PV Costs 15 years Machine A Machine B $75,500 are the same functions, have The machines, A and, which Bowing costs and lives Life $105,000 8 years DOO Ir the cost of capital were 250, which machine would you chooser 2. Machine A because the EAC(equivalent annual cost) is $27.20 527,207.27. Machine because the EAC equivalent annual cost) is $9346.50. Machine A because the EAC equivalent annual cost) is $7000.00. d. Machine B because the EAC equivalent annual cost) is $22,680.09. Please Show Your Steps Below 14. The World Tobacco Company is expected to pay a dividend of $5 per share at the end of year 1(D1) and the dividends are expected to grow at a constant rate of 8% forever. If the current price of the stock is $25 per share, calculate the expected return or the cost of equity capital for the firm. a. 20% b. 28% C2596 d. 32% Please Show Your Calculation Steps Below OP U +5/share/ year => 42 growth 7x365 15. Hayden Inc. has a required rate of return of 13.4%. The company is experiencing a highly abnormal growth rate of 30%. This growth rate is expected to continue for three years. After year three, the growth rate is expected to return to a normal 8% and remain constant forever. If the company's last paid dividend (DO) was $1.15 what would be the market value (PO) for this supernormal growth rate stock?

Answer 1

Answer 13:-

Q 13)

The Option d is the correct value.

EAC = NPV × r / [1 − (1 + r)^-n ]
NPV = PV
r = cost of capital
n = number of years
EAC of Machine A = $ 105000 x 0.25 / [1 - (1.25)^-15 ]

= $ 52500 / [ 1 - ( 1 / 28.42)]
= $ 52500 / ( 1 - 0.0352)
= $ 52500 / 0.965
= $ 54404

EAC of machine B = $ 75500 X 0.25 / [1 - (1.25)^-8 ]
= $ 18875 / ( 1- ( 1 / 5.96))
= $ 18875 / ( 1 - 0.167)
= $ 18875 / 0.833
= $ 22660
Since EAC is $ 22660 is close to option d ,hence option d is the right choice.

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