Question
In: Finance
Q1.) The common stock of Kangaroo Tours is selling for $67.13 a share and has a...
Q1.) The common stock of Kangaroo Tours is selling for $67.13 a share and has a 14.6 percent rate of return. One-third of the return on this stock is derived from dividends and the other two-thirds is derived from capital gains. What is the amount of the next dividend?
Q2.) A project has the following cash flows for years 0 through 2, respectively: -12,091, 9,780, 9,321. What is the internal rate of return on this project?
Q3.) GDebi Enterprises is thinking of building a chemical processing plant to produce 4-hydroxy-3-methoxybenzaldehyde. The firm estimates that the initial cost of the project will be $10.4 million, and the plant will produce cash inflows of $7.8 million for the next 5 years, after which time the project will terminate. In the 6th year however, the firm will need to clean up the site, which it estimates will cost it $4 million. The discount rate the firm wants to use for the project is 13.8 percent. What is the NPV of this project? (Enter answer in millions.)
Solutions
Expert Solution
1. dividend yield = 1/3 * 14.6
amount of next dividend = 1/3 * 14.6% * 67.13 = 3.27
2.
| Cash flows | Year |
| (12,091.00) | 0 |
| 9,780.000 | 1 |
| 9,321.000 | 2 |
Use IRR function in Excel
IRR = 37.11%
3.
| Discount rate | 13.8000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| (10.40) | 0 | (10.40) | (10.40) |
| 7.800 | 1 | 6.85 | (3.55) |
| 7.800 | 2 | 6.02 | 2.48 |
| 7.800 | 3 | 5.29 | 7.77 |
| 7.800 | 4 | 4.65 | 12.42 |
| 7.800 | 5 | 4.09 | 16.51 |
| (4.000) | 6 | (1.84) | 14.67 |
NPV = 14.67 millions
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