Respuesta :
It is anticipated that these profits will continue to increase forever at a steady yearly rate of 6%.
(a) the instant before its pays out current profits as dividends = 51.30 million
(b) the instant after its pays out current profits as dividends = 50.35 million.
Annual Percentage Rate (APR) Definition
The term annual percentage rate (APR) describes the annual interest that is produced by a payment that is owed to investors or levied to borrowers. The annual percentage rate, or APR, is a measure of the real cost of borrowing money over the course of a loan or the income generated by an investment.
This includes any fees or other expenditures related to the transaction but does not account for compounding. Consumers may compare lenders, credit cards, and investment goods using the APR, which gives them a concrete number to work with.
Calculation:
Current profits = $950,000
Annual rate = 6 percent
Opportunity cost = 8 percent
We get here the value of the firm before paying out current profits as dividend is expressed as
Value of the firm = Current profits ( 1+opportunity cost ) ÷ ( opportunity cost - annual rate )
putting the value here,
Value of the firm = [950,000 * (1+0.08)]/0.08-0.06
Value of the firm = 51.30 million
and,
The value of the firm after pay is
Value of the firm = current profits ( 1+annual rate ) ÷ ( opportunity cost - annual rate )
putting the value
Value of the firm = [950,000 * (1+0.06)]/0.08-0.06
Value of the firm = 50.35 million.
Learn more about the annual percentage rate with the help of the given link:
brainly.com/question/1361627
#SPJ4
Correct Question:
A firm's current profits are $950,000. These profits are expected to grow indefinitely at a constant annual rate of 6 percent. If the firm's opportunity cost of funds is 8 percent, determine the value of the firm
(a) the instant before its pays out current profits as dividends.
(b) the instant after its pays out current profits as dividends.
