What is the present value valuation of the following? peppery of $ 200 per year

Question

What is the present value valuation of the following? peppery of $ 200 per year discounted at 6% annually Preferred stock with a dividend of 55 per year. discounted the a 9% reared rate of return rate of rectum today, expected to grow steadily at 5% indefinitely, discounted with a 7% require Company K is considering two mutually exclusive projects. The cash flows outlay and incomes of the projects Compute the payback period for each project Compute the NPV for each project, assuming a 13% required rate of return Compute the Profitability Index for each project, assuming a 13% required rate of return. Fully explaining your logic, how would you decide between these two projects?

Explanation / Answer

a)

Present value of perpetuity = CF1÷required rate

= $200/6%

= $3,333.33

b)

Price of preferred stock = Annual preference dividend/Required return

= $5/9%

= $55.56

c)

Stock price (P0) D1÷(r-g) Here, Expected dividend (D1) $                                        1.05 Required return ( r) 7.00% Growth rate (g) 5.00% Stock price (P0) $                                     52.50 1.05/(7%-5%)

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