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a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.) Rate of return 10 % a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO

a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.) Rate of return 10 % a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Compost Science Inc. (CSI) is in the business of converting Boston's sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSl a 14% book return on equity. At the end of the year, CSl is expected to pay a $5 dividend. It has been reinvesting 40% of earnings and growing at 5% a year. a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.) Rate of return 10 % a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO
Transcribed Image Text:Compost Science Inc. (CSI) is in the business of converting Boston's sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSl a 14% book return on equity. At the end of the year, CSl is expected to pay a $5 dividend. It has been reinvesting 40% of earnings and growing at 5% a year. a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.) Rate of return 10 % a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO
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