joseenrique02
04.05.2020 •
Business
You are considering buying a share of stock in the tech company Neutrino, LLC for $250. You expect the stock to pay a dividend of $2 after 3 years and $10 after 4 years, but no dividends in years 1 and 2. You also expect to sell the stock after 4 years for $270.
(a) If your bank account pays an interest rate of 3 percent, is Neutrino, LLC a good invest- ment? What about if your bank pays an interest rate of 4 percent?
(b) If your bank account pays an interest rate of 4 percent, what would the future sale price of stock in Neutrino, LLC have to be after 4 years for the current stock price of $250 to be fair value?
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Ответ:
(a)-$14.86, If NPV is negative, it is not considered a good investment. (b) $287.38
Explanation:
Solution
Recall that,
(a) The sale price expected=$270
The price of purchase=$250
The dividend after year 3=$2
The dividend after year 4=$3
The NPV of investment= -250+2/(1+i)^3+(3+270)/(1+i)^4
Then,
If the interest is =3%
The NPV of investment=-250+2/(1+3%)^3+(3+270)/(1+3%)^4=-$5.61
When the NPV is negative, this is not considered a good investment.
Thus,
If the interest is =4%
The NPV of investment=-250+2/(1+4%)^3+(3+270)/(1+4%)^4=-$14.86
If NPV is negative, it is not considered a good investment.
(b) Let say the sale price be X
Then,
The NPV of investment=-250+2/(1+4%)^3+(3+X)/(1+4%)^4
If $250 is a fair price, the NPV is taken as zero
so,
=-250+2/(1+4%)^3+(3+X)/(1+4%)^4=0
= -250+1.777993+(3+X)*0.854804=0
=(3+X)*0.854804=248.222007
=3+X=290.38
Therefore.
X=$287.38
Ответ:
One example is the following: Colombia produces coffee with less labor and land than any other country which means that Columbia has an absolute advantage in coffee production.