You are the CEO of a mediocre gaming company. Your company has just announced earnings of $500,000. A business magnate, Dilan Husk, twits about your company and your sales start to soar. Analysts predict that your earnings will grow at a rate of 70% per year for the next three years. After that, as competition increases, earnings growth is expected to slow to 10% per year for another five years and then you go back to the mediocre growth of 3% per year. You continue at that level forever. What is the present value of all future earnings if the interest rate is 7% compounded annually? (Assume all cash flows occur at the end of the year.)

You are the CEO of a mediocre gaming company. Your company has just announced earnings of $500,000. A business magnate, Dilan Husk, twits about your company and your sales start to soar. Analysts predict that your earnings will grow at a rate of 70% per year for the next three years. After that, as competition increases, earnings growth is expected to slow to 10% per year for another five years and then you go back to the mediocre growth of 3% per year. You continue at that level forever. What is the present value of all future earnings if the interest rate is 7% compounded annually? (Assume all cash flows occur at the end of the year.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 22P

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