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a) Simone Smith is an analyst at NCB, she knows with certainty that XYZ Corporation will exist for three years and have the following cash flows per share: Year 1 Year 2 Revenue $300 $300 Costs $260 $ 260 Net cash flows $ 40 $ 40 What is the stock price of XYZ Corporation, if the opportunity cost of capital is 5.5 percent? (3 marks). Year 3 $300 $ 260 $ 40 b) Using the information from the table in part (a) above, Miss Smith realizes that XYZ Corporation's costs may not be $260 per share with certainty. Instead, each year there is a 10 percent chance that a worker will be seriously injured and that XYX will have to pay the employee's medical expenses and lost wages. If injury does occur, XYZ's costs equal $270 per share. If an injury does not occur (which has a probability of 0.90), then XYZs costs equal $255 per share. iii. What is XYZs expected net cash flow in each year? (Show all workings for maximum marks) (10 marks) If the opportunity cost of capital is 5.5 percent, what is the stock price? (4 marks) Why must risk management decisions be reviewed regularly? (3 marks)

a) Simone Smith is an analyst at NCB, she know's with certainty that XYZ Corporation will exist for three years and have the following cash flows per share: What is the stock price of XYZ Corporation, if the opportunity cost of capital is 5.5 pcrcent? (3 marks). b) Using the information from the table in part (a) abuve, Miss Snith realizes that XYZ Corporation's costs may not be $260 per share with certainty: Instead, each year there is a 10 percent chance that a worker will be seriously injured and that XYX will have to pay the employee's medical expenses and lost wages. If injury does occur. XYZ's costs equal $270 per share. If an injury does nol occur (which has a probability of 0.90 ), then XYZs costs equal $255 per share. i. What is XYZS expected net cash flow in each ycar? (Show all workings for maximum (10 marks) marks) ii. If the opportunity cost of capital is 5.5 peretnt, what is the stock price? (4 marks) iii. Why must risk management decisions be reviewed regularly? ( 3 marks)

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