Find the present value for the following string of cash flows. The risk free rate is currently 1%. A stock has a beta of 1.28 and the market risk premium is 8%.
Year 1 cash flow: $1,500
Year 2 cash flow: $5,500
Year 3 cash flow: $2,010
cash flows will grow 2% indefinitely after year 3
A.$17,795.56
B.$18,668.82
C.$23,372.44
D.$25,468.65
Required rate=risk free rate+Beta*market risk premium
=1+(1.28*8)=11.24%
Value after year 3=(Year 3 cash flow*Growth Rate)/(Required Return-Growth Rate)
=(2010*1.02)/(0.1124-0.02)
=$22188.31169
Hence present value=Future values and cash flows*Present value of discounting factor(rate%,time period)
=1500/1.1124+5500/1.1124^2+2010/1.1124^3+$22188.31169/1.1124^3
=$23372.44(Approx).
Find the present value for the following string of cash flows. The risk free rate is...
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