i have no idea where to start with this one :/ Consider a firm with existing ass

Question

i have no idea where to start with this one :/

Consider a firm with existing assets that generate an EPS of $5. If the firm does
not invest except to maintain existing asset, EPS is expected to remain constant at
$5 a year. However starting next year the firm has a chance to invest $3 per share
a year in developing a newly discovered geothermal steam source for electricity
generation. Each investment is expected to generate a permanent 20% return
and discount rate is 12%. However, the source will be fully developed by the fifth
year. What will the stock price at time 0? Solve the problem using standard
valuation method, i.e. stock price equals the present value of discounted future
dividend stream. Set the problem up on spreadsheet.

Explanation / Answer

Here, by using excel spread sheet we can calculate the Stock price at 0 time. Inset PV in formula bar and take the values as,                                                                Rate : 12%                                                                Nper : 5                                                                PMT : -5                                                                FV : 3.    By enter we can get the value as $16.32. Therefore this PV is nothing but the stock price at 0 time                      

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