Question

Solar-Tex is a new high-tech company producing solar panels. It expects earnings of $2 million in its first year of operation. Its earnings are expected to grow at 25% per year for the next 6 years. Analysts are convinced that after this period of high growth, earnings will only grow at 4% per year forever due to other competitors entering the market. If the annual interest rate (EAR) is 8%, what is the total present value of Solar-Tex's future earnings? Hint: Take period 6 as the "new period 0" for the calculations involving the remaining horizon.
Select one:
a. $165.258 million
b. $169.104 million
c. $116.519 million.
d. $175.208 million
e. $108.826 million

Answer 1

The answer is as follows;