Homework Answers
Year 5 cash flow = 29 * (1 + 5%) = 30.45
Value of year 4 = D5 / required rate - growth rate
Value of year 4 = 30.45 / 0.12 - 0.05
Value of year 4 = 30.45 / 0.07
Value of year 4 = 435
Total value = 10 / (1 + 0.12)1 + 15 / (1 + 0.12)2 + 22 / (1 + 0.12)3 + 29 / (1 + 0.12)4 + 435 / (1 + 0.12)4
Total value = 8.9286 + 11.9579 + 15.6592 + 18.430024 + 276.4504
Total value = $331.4260
Equity value = $331.4260 - $100
Equity value = $231.43
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