4 Compost Science Inc. (CSI) is in the business of converting Boston's sewage sludge into fertilizer. The business is not in itself veryprofitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whateveramount is necessary to yield CSl a 14% book return on equity. At the end of the year, CSl is expected to pay a $5 dividend. It has beenreinvesting 40% of earnings and growing at 5% a year.a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Donot round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.)Rate of return10 %a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations.Round your answer to 2 decimal places.)PVGO

The long run rate of return for purchasing the stock at $100 can be calculated with the help of…

a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.) Rate of return 10 % a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO

a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.) Rate of return 10 % a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter25: Taxation Of International Transact Ions

Section: Chapter Questions

Problem 25P

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Compost Science Incorporated (CSI) is in the business of converting Boston's sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSI a 12% book return on equity. At the end of the year, CSI is expected to pay a $5 dividend. It has been reinvesting 30% of earnings and growing at 3% a year. a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number. a-2. What part of the $100 price is attributable to the present value of growth opportunities? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. Now the MDC announces a plan for CSI to treat Cambridge sewage. CSI's plant will, therefore, be expanded…
Compost Science Incorporated (CSI) is in the business of converting Boston's sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSI a 12% book return on equity. At the end of the year, CSI is expected to pay a $5 dividend. It has been reinvesting 30% of earnings and growing at 3% a year. a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number. a-2. What part of the $100 price is attributable to the present value of growth opportunities? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. Now the MDC announces a plan for CSI to treat Cambridge sewage. CSI's plant will, therefore, be expanded…
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