Solutions to Valuation practice problems Prepared by Pamela Peterson-Drake
Asset valuation 1.
Value = $4,000 / (1 + 0.10)2 + $5,000 / (1 + 0.10)3 Value = $3,305.79 + 3,756.57 Value = $7,062.36 TI-83/84 {0,4000,5000} STO listname NPV(10,0,listname)
2.
HP10B 0 CFj 0 CFj 4000 CFj 5000 CFj 10 i/YR NPV
Return = 7.869% TI-83/84 {3000,2000} STO listname IRR(-4500,listname)
3.
HP10B 4500+/- CFj 3000 CFj 2000 CFj IRR
Value = $16,752.91 TI-83/84 {10000,0,4000,5000} STO listname NPV(6,0,listname)
HP10B 0 CFj 10000 CFj 0 CFj 4000 CFj 5000 CFj 6 i/YR NPV
Stock valuation 1.
If re increases, the value of a share of stock would decrease. Note the relation between the price and re: P = D1 / re - g
2. Company
D0
g
re
D1
Company 1
$2.00
5%
10%
$2.10
$2.10/0.05 = $42
Company 2
$3.00
3%
7%
$3.09
$3.09 / 0.04 = $77.25
Company 3
$5.00
2%
6%
$5.10
$5.10 / 0.04 = $127.50
Company 4
$2.25
0%
8%
$2.25
$2.25 / 0.08 = $28.125
P0
Company 5 3.
Given:
$2.00
-5%
6%
$1.90
$1.90 / 0.11 = $17.27
PV = $0.055 FV = $0.090 n=4
Solve for i i = g = 13.10%
Bond valuation 1.
Given:
rd = 5%; rd = 4%; rd = 6%;
a. b. c. 2.
Given:
a. b. c. 3.
M = $1,000 C = 10% x $1,000 x 0.5 = $50 N = 10 x 2 = 20 V = $1,000.00 [bond quote = 100] V = $1,135.90 [bond quote = 113.59] V = $885.30 [bond quote = 88.53]
M = $1,000 N = 10 C = $50 rd = 4%; rd = 5%; rd = 6%;
V = $1,081.11 [bond quote = 108.11] V = $1,000.00 [bond quote = 100] V = $926.40 [bond quote = 92.64]
Given: M = $1,000 N = 10 a. rd = 3%; b. rd = 4%; c. rd = 5%;
V = $744.09 V = $675.56 V = $613.91
[bond quote = 74.409] [bond quote = 67.556] [bond quote = 61.391]
