Investment on companys cost of capital is infinitely high

Assignment Help Financial Management

Reference no: EM13885233

Suppose that a company must examine an investment today (1st January) costs 100 000 SEK. This investment would provide SEK 30 000 in cash to the company at the end of each year for the 5 coming years. The company's market value is SEK 5 000 000. The Company's stock is valued at SEK 250. Ignore taxes.

a) Calculate and answer whether the company should implement the investment on the company's cost of capital is 0?

b) Calculate and answer whether the company should implement the investment on the company's cost of capital is infinitely high?

c) Adopt a discount rate of 10% and cash flow under conditions decreases by 3% annually forever. Calculate and answer whether the company will implement the investment.

d) If the company has a discount rate of 10%, what will be the company's stock price if the implementation given basic conditions above?

e) Assume that a share pays 8 crowns in dividends now and is expected to increase by 6% continuously. What is the maximum price you are willing to give for this share if you have a required return of 21%?

Reference no: EM13885233

Questions Cloud

How long will it be before you have enough to buy the car : You're trying to save to buy a new $204,000 Ferrari. You have $54,000 today that can be invested at your bank. The bank pays 6.2 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

Developing drugs for neurological diseases : A young listed company developing drugs for neurological diseases. So far the company has not shown any sales due to the typically long lead times to produce medicines. The market now is on is volatile, its beta value = 2 , the access to capital is u..

Why the shareholders return requirements : Explain how and why the shareholders' return requirements are influenced by a company's unsystematic and systematic risks. How is the capital of the company and the value of the company if the central bank suddenly decides to sharply raise the policy..

Calculate and answer what the bond is worth : A company issued a bond with the following conditions: Sales price = SEK 1000, strike price = 1100 SEK , coupon = 80 and the number of outstanding year for the bond is 10. Calculate and answer what the bond is worth.

Investment on companys cost of capital is infinitely high : Suppose that a company must examine an investment today (1st January) costs 100 000 SEK. This investment would provide SEK 30 000 in cash to the company at the end of each year for the 5 coming years. Calculate and answer whether the company should i..

Does it take marios to sell its inventory : Mario's Home Systems has sales of $2,790, costs of goods sold of $2,130, inventory of $498, and accounts receivable of $427. How many days, on average, does it take Mario's to sell its inventory?

Strategy-cost and payoff of the options and total payoff : A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net gain (after the cost of the options is taken into account)?..

Total value of the warrants and the value of each warrant : A warrant is a long-term option from a company that gives the holder the right to buy a stated number of shares of the firm’s stock at a specified price for a specified length of time. What is the total value of the warrants and the value of each war..

What is the overall rate of return to investors : A warrant is a long-term option from a company that gives the holder the right to buy a stated number of shares of the firm’s stock at a specified price for a specified length of time. Assuming that the warrants will not be exercised prior to expirat..

User Account

All Pages