Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Growth firm
Growth Firm Founders of a firm put up 140 million at time 1 to be withdrawn completely at time 2 by selling the firm to new stockholders.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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Transcribed Image Text:Growth Firm Founders of a firm put up 140 million at time 1 to be withdrawn completely at time 2 by selling the firm to new stockholders.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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Step 1: Calculating Market values
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Step 2: Rate of return of original stockholder
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Step 3: Rate of return of new stockholder
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