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Solar-Tex is a new high-tech company producing solar panels. It expects earnings of $2 million in...

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.

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Expert Solution

ALL CALCULATIONS ARE SHOWN, NO EXCEL FUNCTION IS USED, JUST WRITTEN IN EXCEL

FIRST YEAR EARNINGS = 2

NEXT YEAR = 2*(1+0.25) = 2.5

AND SO ON

jeff jeffy answered 2 years ago
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