Expected Value and Perpetuity Problems Set
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PV Cash Inflows – PV Cash Outflows = NPV
$112,000 – $40,000 = $72,000.
But the center also has a 40% chance of barely breaking even with the present value of the reduction of turnover being $42,000 and the present value of costs still the amounts listed above.
Given the possible outcomes and their probabilities, what is the expected outcome of the Net Present Value for the Career Resource Center project?
Formula = Σ (p × Scenario NPV)
whereby, Scenario NPV is the NPV under a specific scenario while p stands for the probability of occurrence of each scenario.
|Scenario||Probability||NPV||p * NPV|
Expected Outcome of NPV = $ 44,000
Expected gains from the investment =250000*15% + 75000*40% + 0*25% – 124000*20%
Preferred Stock Valued as a Perpetuity
Applying the concept of present value of a perpetuity,
Facebook Value of preferred stock shares
= Annual Dividend / Required Rate
= 7 / 10%
= $70 per share
a) What is the fixed, annual dividend per share on each of these shares?
Annual dividend= Dividend rate X Par value
= 5.50% x 70
b) If an investor requires a 4.50% return on Hershey, what is the value is of the preferred stock
Value per share = Dividend / Rate
= 3.85 / 4.50%
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