Problem 01-04 (Algo)...

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Problem 01-04 (Algo)
A firm's current profits are $900,000. These profits are expected to grow indefinitely at a constant annual rate of 4
percent. If the firm's opportunity cost of funds is 6 percent, determine the value of the firm
Instructions: Round your responses to 2 decimal places.
a. The instant before it pays out current profits as dividends.
$ million
b. The instant after it pays out current profits as dividends.
$ million
Im coming up with A. $47,700,000
B. $46,800,000
$900,000 (1.06/.02) = 900,000 * 53 = 47,700,000 Million
$900,000 (1.04/.02) = 900,000 * 52 = 46,800,000 Million
-------------------------------------------Below is an example of how to solve the problem. But my answers when using the formula
below, plugging in all numbers correctly, are coming up wrong when I submit them. I need to
know what Im doing wrong.

 

Solution ID:351194 | This paper was updated on 26-Nov-2015

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