Homework Answers
PV of dividends end of year 3 for all remaining dividends = dividend/rate of return = 2.1/0.05 = 42
Total dividend year 3 = 2.1+42 = 44.1
| Share | ||||
| Discount rate | 0.05 | |||
| Year | 0 | 1 | 2 | 3 |
| Cash flow stream | 0 | 1.2 | 1.65 | 44.1 |
| Discounting factor | 1 | 1.05 | 1.1025 | 1.157625 |
| Discounted cash flows project | 0 | 1.142857 | 1.496599 | 38.09524 |
| NPV = Sum of discounted cash flows | ||||
| NPV Share = | 40.73 | |||
| Where | ||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |||
| Discounted Cashflow= | Cash flow stream/discounting factor | |||
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