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You offer investors the opportunity to invest 100 financed solely with equity.
When inventory is purchased it is recorded as a (n) and when sold it becomes a(n
September 15, 2020The Foster Corporation has paid dividends on common stock over the ten ye
September 15, 2020You offer investors the opportunity to invest 100 financed solely with equity.
Assuming that no taxes are payable projected constant annual profits to perpetuity are 25 (we assume that necessary capital expenditure is equal to
depreciation that change in WCR is nil and that all profits are paid out).
(a) What is the rate of return required by the market on this investment?
(b) The return on this investment only comes to 10 per year. If the required rate of return is not modified what will the value of this share be on the
secondary
market?
(c) Same question if the return on the investment is 50 per year? And if profits are nil?
(d) What impact will all of the above scenarios have on the company?
(e) Is it possible to define a simple rule on the creation and destruction of value?
