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Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect...

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Accounting

Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,400 at the end of each year and assume that you can sell the car for after tax proceeds of $7,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 7% after taxes. A. Identify the cash flows, their timing, and the required return applicable to valuing the car. B. What is the maximum price you would be willing to pay to acquire the car? Explain. B) Tinoco Inc., is entering into a 3-year remodelling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $3.40 per share. It expects zero growth in the next year. In years 2 and 3, 5% growth is expected, and in year 4, 15% growth. In year 5 and thereafter, growth should be a constant 10% per year. What is the maximum price per share that an investor who requires a return of 14% should pay for Tinoco., common stock?

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