Reference no: EM132319997
Answer the following Questions :
1. The next dividend payment by Dizzle, Inc., will be $3.15 per share. The dividends are anticipated to maintain a growth rate of 3.50 percent, forever.
If the stock currently sells for $49.90 per share, what is the required return? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Required return
%
2. The next dividend payment by Dizzle, Inc., will be $3.35 per share. The dividends are anticipated to maintain a growth rate of 7.5 percent, forever. Assume the stock currently sells for $50.30 per share.
What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Dividend yield
%
What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Capital gains yield
%
3. Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.30 dividend every year, in perpetuity.
If this issue currently sells for $80.25 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return
%
4. Wesen Corp. will pay a dividend of $3.10 next year. The company has stated that it will maintain a constant growth rate of 4.75 percent a year forever.
If you want a return of 16 percent, how much will you pay for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current stock price $
If you want a return of 10 percent, how much will you pay for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current stock price $
5. The Sleeping Flower Co. has earnings of $1.44 per share.
If the benchmark PE for the company is 13, how much will you pay for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current stock price $
If the benchmark PE for the company is 16, how much will you pay for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current stock price $
6. Consider the following cash flows:
Year Cash Flow
0 –$ 6,200
1 1,800
2 3,500
3 1,600
4 1,300
What is the payback period for the cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Payback period
years
7. You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $18.6 million, which will be depreciated straight-line to zero over its four-year life.
If the plant has projected net income of $1,815,000, $2,145,000, $2,034,000, and $1,326,000 over these four years, what is the project’s average accounting return (AAR)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Average accounting return
%
8. For the given cash flows, suppose the firm uses the NPV decision rule.
Year Cash Flow
0 –$153,000
1 63,000
2 76,000
3 60,000
At a required return of 9 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV $
At a required return of 21 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV $
9. Consider the following cash flows:
Year Cash Flow
0 –$32,500
1 13,800
2 17,900
3 11,200
What is the IRR of the above set of cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Internal rate of return
%
10. Consider the following cash flows:
Year Cash Flow
0 –$ 29,900
1 13,800
2 15,100
3 11,500
What is the profitability index for the cash flows if the relevant discount rate is 8 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
Profitability index
What is the profitability index if the discount rate is 13 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
Profitability index
What is the profitability index if the discount rate is 20 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
Profitability index
11. Fill in the missing numbers in the following income statement: (Do not round intermediate calculations and round your answers to the nearest whole number, e.g. 32.)
Sales $644,700
Costs 346,200
Depreciation 96,900
EBIT $
Taxes (35%)
Net income $
What is the OCF? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g. 32.)
OCF $
What is the depreciation tax shield? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g. 32.)
Depreciation tax shield $
12. Consider an asset that costs $786,400 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $135,800.
If the relevant tax rate is 40 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Aftertax salvage value $
13. Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,500, and the company expects to sell 1,500 per year. The company currently sells 2,000 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,820 units per year. The old board retails for $22,400. Variable costs are 55 percent of sales, depreciation on the equipment to produce the new board will be $1,450,000 per year, and fixed costs are $1,350,000 per year.
If the tax rate is 38 percent, what is the annual OCF for the project? (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.)
OCF $
14. H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,580,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,310,000 in annual sales, with costs of $1,330,000. Assume the tax rate is 30 percent and the required return on the project is 6 percent.
What is the project’s NPV? (A negative answer should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Net present value $
15. We are evaluating a project that costs $1,422,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 88,200 units per year. Price per unit is $34.85, variable cost per unit is $21.10, and fixed costs are $762,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project.
Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
NPV
Best-case $
Worst-case $