Corp Fin Practice

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1.The Muggle Co. has just paid a dividend of $1 per share. The dividends are expected to grow at 20% per year for the next three years and at the rate of 5% per year thereafter. If the required rate of return on the stock is 15%(APR), what is the current value of the stock?

 
 
2.Here are the possible projects for a firm:
 
ABCDEFG
5451278Initial investment
1.5–0.510.50.511NPV

The firm has only twenty million to invest. What is the maximum NPV that the company can obtain?
 
 
3.Stock A has an expected return of 20% and Stock B has an expected return of 12%. The risk of stock A as measured by the variance is three times that of stock B. If the correlation coefficient between the two stocks is zero, what proportion of investment in each stock gives the minimum portfolio variance (minimum risk)?

 
 
4.The historical returns data for the past three years for Stock B and the stock market portfolio are:  
Stock B: 24%, 0%, 24%, Market Portfolios: 10%, 12%, 20%.
 
a. Calculate the expected return for Stock B and the market portfolio.
b. Calculate the variance in the market.
c. Calculate the covariance of returns between Stock B and the market portfolio.
d. Calculate the beta for Stock B.
e. If the risk-free rate is 4%, calculate the market risk premium.
f. Calculate the required rate of return (cost of equity) for Stock B using CAPM.
 
 
5.If a firm borrows $25 million for one year at an interest rate of 10%, what is the present value of the interest tax shield? Assume a 35% tax rate.
 
 
6.The Basilisk Company has total assets of $30 million, of which $10 million are financed by debt and $20 million by equity. The EBIT (earnings before interest and tax) is $6 million. If the firm's tax rate is 34%, and the interest rate on debt is 10%, calculate its after-tax cash flow.  

 
7.Suppose that a company can direct $1 to either debt interest...
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