Founders of a firm put up 140 million at time 1 to be withdrawn completely at time 2 by selling the firm to new stockholders. The 140 million investment will generate the following cash earnings: 55 million, 72.60 million and 93.17 million at times 2,3 and 4 respectively. The market interest rate is 10% in all periods. What are the market values of the firm in every period? What is the rate of return for the original stockholders? What is the rate of return for the new stockholders?
Founders of a firm put up 140 million at time 1 to be withdrawn completely at time 2 by selling the firm to new stockholders. The 140 million investment will generate the following cash earnings: 55 million, 72.60 million and 93.17 million at times 2,3 and 4 respectively. The market interest rate is 10% in all periods. What are the market values of the firm in every period? What is the rate of return for the original stockholders? What is the rate of return for the new stockholders?
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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Growth firm
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Founders of a firm put up 140 million at time 1 to be withdrawn
completely at time 2 by selling the firm to new stockholders. The 140
million investment will generate the following cash earnings: 55 million,
72.60 million and 93.17 million at times 2,3 and 4 respectively. The
market interest rate is 10% in all periods.
What are the market values of the firm in every period?
What is the rate of return for the original stockholders?
What is the rate of return for the new stockholders?
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