contestada

A firm's current profits are $650,000. These profits are expected to grow indefinitely at a constant annual rate of 5 percent. If the firm's opportunity cost of funds is 7 percent, determine the value of the firm:Round your responses to 2 decimal places.a. The instant before it pays out current profits as dividendsb. The instant after it pays out current profits as dividends.

Respuesta :

TomShelby

Answer:

before disrtibution of dividends: 34,125,000

                     after distribution:    33,475,000

Explanation:

we will calculate this using the gordon model for dividen grow but using the firm income asdividends instead:

[tex]\frac{income_1}{return-grow} = firm \: Value[/tex]

income zero: 650,00

income next year: 650,000 x 1.05 = 682,500

return 7%

grow 5%

[tex]\frac{682,500}{0.07 - 0.05} = firm \: Value[/tex]

firm value: 34.125.000‬

once it distribute dividends, the equity will decrease by that ammount:

34,125,000 - 650,000 = 33,475,000

Otras preguntas

Q&A Education