What is the firm cost of common equity

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1. Honey Bee is thinking about purchasing a new clam maker for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Assuming that the cost of capital is 12 percent what is the MIRR for the project?

35%

30%

21%

28%

13%

2. An investment project requires a net investment of $100,000. The project is expected to generate annual net cash inflows of $28,000 for the next 5 years. The firm's cost of capital is 12 percent. Determine whether you would accept or reject the project using the discounted payback period method. The company rejects projects that exceed a discounted payback period of over 3 years.

4.94 years, Reject the project

2.5 years, accept

4.09 years, accept

1.43 years, accept

3. A firm is determining its cost of common stock equity. It last paid a divided of $.52, the dividends are growing at 5%, flotation costs are $2 per share and the firm will net $72 per share upon the sale of the stock. What is the firm’s cost of common equity?

3.49%

8.22%

6.11%

5.76%

Reference no: EM132058768

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