An analyst knows with certainty that Skipper Inc. will exist for two years and have the following cash flows per share: Year 1 Year 2 Revenue $100 $100 Costs $ 80 $ 80 New Cash Flow $ 20 $ 20 a) What is the stock price of Skipper Inc., if the opportunity cost of capital is 8 percent? Solution Statement showing Cash flows Particulars Time PVf@8% Amount PV Cash inflows(Revenues- Cost)(100-80)                     1.00           0.9259              20.00                 18.52 Cash inflows(Revenues- Cost)(100-80)                     2.00           0.8573              20.00                 17.15 Stock Prie                 35.67 .

1. An analyst knows with certainty that Skipper Inc. will exist for two years and have the following
cash flows per share:
Year 1 Year 2
Revenue $100 $100
Costs $ 80 $ 80
New Cash Flow $ 20 $ 20
a) What is the stock price of Skipper Inc., if the opportunity cost of capital is 8 percent?
Solution
Statement showing Cash flows Particulars Time PVf@8% Amount PV Cash inflows(Revenues-
Cost)(100-80) Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1.00 Â Â Â Â Â Â Â Â Â 0.9259
            20.00                18.52 Cash
inflows(Revenues- Cost)(100-80) Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2.00
         0.8573             20.00
               17.15 Stock Prie                35.67