Finance

 

For the company ExxonMobil  answer the following questions. Assume a discount rate for all 

cash flows of r=2.5% nominal annual. 

a) The current amount of dividends paid by the company is $0.87/share

Based on the dividend amount, calculate the theoretical stock price 

using the dividend discount model, assuming that the dividend remains con

stant forever. (Pay attention to the number of dividend payments per year for 

your company) (2 points) 

b) Due to the Coronavirus some companies might not be able to pay the full 

amount of the dividend in the future. Using the dividend discount model calcu

late the stock price under the assumption that for the next 10 years the compa

ny will pay NO dividends at all and after that resume paying the same dividend 

as today for all future periods. (4 points) 

c) Similarly, using the dividend discount model calculate the stock price under 

the assumption the dividends will fall by 5% every year from the current level 

for the next 5 years and then remain constant at that level for all future peri

ods. (5 points) 

d) Explain the difference between the NPV and the IRR method when making in

vestment decisions. Which method should be preferred when choosing be

tween several projects? And Why? (4 points)