Homework Answers
10:
Maximizing the value of the company's ordinary shares
(The value of firm is described as value of the company. The accounting profit/sales of the firm does not determine the value. Interest charged by creditors is not a determinant of value of firm)
1:
A perpetuity of $250,000 starting 1 year from now
PV of first option = $2000,000
PV of option 2 = A*(1-1/(1+r)^n)/r
= 300000*(1-1/1.1^10)/0.1
=1,843,370
PV of option 3= Fv/(1+r)^n
= 3000000/1.1^5
=1862764
PV of option 4= (P/r)/ (1+r)^1
= (250000/0.1)/1.1
=2,272,727
Option 4 has the highest PV
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