Fin515 Project Week 7

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1. (TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price? (Points : 10)        $23.11

       $23.70
       $24.31
       $24.93
       $25.57 
2. (TCO D) If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock’s expected dividend yield for the coming year? (Points : 10)        4.42%
       4.66%
       4.89%
       5.13%
       5.39%
 3. (TCO D) Rebello's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return? (Points : 10)        6.62%

       6.82%
       7.03%
       7.25%
       7.47%
4. (TCO E) Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting? (Points : 10)        Long-term debt
       Accounts payable
       Retained earnings
       Common stock
       Preferred stock 
5. (TCO E) Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A’s cost of capital is 10.0%, Division B’s cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A’s projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept? (Points : 10)        A Division B project with a 13% return.

       A Division B project with a 12% return.
       A Division A project with an 11% return.
       A Division A project with a 9% return.
       A Division B project with an 11% return.
6. (TCO D) Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach? (Points : 10)        9.42%

       9.91%
       10.44%
       10.96%
       11.51%
 7. (TCO F) Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.  WACC:  10.00%

Year                  0           1            2          3                    -----------------------------------------------            Cash flows    -$1,050     $450     $460     $470 (Points : 10)        $ 92.37

       $ 96.99
       $101.84
       $106.93
       $112.28
 8. (TCO F) Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected.  

Year                   0         1           2          3          4                     --------------------------------------------------------- Cash flows     -$850     $300     $290     $280     $270 (Points : 10)        13.13%

       14.44%
       15.89%
       17.48%
       19.22%
 9. (TCO F) Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?  WACC:  10.00%

Year                  0          1           2          3          4                     --------------------------------------------------------- Cash flows     -$950     $525     $485     $445     $405 (Points : 10)        1.61 years

       1.79 years
       1.99 years
       2.22 years
       2.44 years
 10. (TCO H) Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a three-year tax life, would be depreciated by the straight-line method over its three-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project’s three-year life. What is the project’s NPV? Risk-adjusted WACC

Net...
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