Author Question: Crosby Inc. has an 11 required rate of return. It does not expect to initiate dividends for 20 ... (Read 68 times)

saraeharris · **on:** Jul 10, 2018

Crosby Inc. has an 11 required rate of return. It does not expect to initiate dividends for 20 years, at which time it will pay 4.00 per share in dividends. At that time, Crosby expects its dividends to grow at 6 forever.

What is an estimate of Crosby's price in 20 years (P20) if its dividend at the end of year 20 is 4.00?
A) 34.80
B) 55.00
C) 57.50
D) 84.80

Question 2

You just took out a 12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5.

What is your total interest expense in the first year of the loan?
A) 1,380.00
B) 1,089.13
C) 764.81
D) 403.20
E) 2,529.29

katara · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: D
Explanation: D) We use the formula: P20 = . Inserting our values, we get:
P20 = = = 84.80.

Answer to Question 2

A