In: Finance
(1)
You have decided to expand the size of your business and will
require $4,775,000 to complete the expansion. Using the information
below, how many shares would you have to sell to raise the
necessary funds (please round up to the nearest whole number):
required rate of return annual | fortnightly rate*12*2 | .2605644517%*2*12 | 6.25% |
Year | expected dividend = dividend in year 8*(1+growth rate)^n n =1,2,3,4 | ||
8 | 1.7 | 1.7 | |
9 | 1.7*(1-0.04)^1 | 1.632 | |
10 | 1.7*(1-0.04)^2 | 1.56672 | |
11 | 1.7*(1-0.04)^3 | 1.5040512 | |
12 | 1.5040*1.035^1 | 1.55664 | |
Horizon value in year 2011 =expected dividend in year 12/(required rate of return-growth rate) | 1.55664/(6.25%-3.5%) | 56.61 | |
Year | cash flow | present value factor at 6.25% =1/(1+r)^n r =6.25% n=8,9,10,11 | present value of cash flow = cash flow*present value factor |
8 | 1.7 | 1.046688401 | |
9 | 1.632 | 0.945713755 | |
10 | 1.56672 | 0.854480193 | |
11 | 1.5040512 | 0.772047986 | |
11 | 56.61 | 29.05608961 | |
Intrinsic value of stock =sum of present value of cash flow | 32.68 | ||
No. of shares needed to sell to acquire the necesarry funds | amount required/value of share | 4,775,000/32.68 | 146114 |