Reference no: EM13852985

Common stock in Enck, Inc. is currently selling for a price of $32.50 per share.  Enck just paid a $1.75 dividend and that dividend has been growing at a steady rate of 2.75% per year and is expected to grow at that same rate for the foreseeable future.  As a shareholder in Enck, Inc., you intend to sell your stock ten years from today.  What price per share do you anticipate receiving in ten years?

The Gallagher Co. has a target capital structure of 65% debt and the remainder common equity.  Gallagher's cost of debt is 8.5%, its tax rate is 35%, its most recent dividend was $2.00 and that dividend has been growing at 3.5% annually and is expected to continue that growth.  The current price of Gallagher stock is $52.50 per share.  Flotation costs on new equity are 8.5% and Gallagher has retained earnings of $3.5 million.  What is the WACC if Gallagher's total capital expenditure is expected to be $8.5 million?

You are considering an investment in two normal cash flow and mutually exclusive projects.  Project Apple has an internal rate of return of 13.6%, while Project Brewster has an internal rate of return of 15.75%.  At a discount rate of 9.8% each project has the same net present value.  If the appropriate weighted average cost of capital is 9.25%, which project(s), if any, should be adopted? Explain your decision.

You are considering a new product line for your business.  The new product line will require investment of $3,000,000 in new equipment. The equipment will be trucked to your facility at a cost of $25,000 and will require another $250,000 to modify that equipment for use in your facility.  The new product line will require an increase in inventory of $200,000, an increase in accounts receivable of $100,000, but you believe you will be able to get suppliers to offer good credit terms which should increase accounts payable by $250,000, and you will obtain a short term bank loan, increasing notes payable by $25,000.  The equipment falls into the 3-year MACRS class (rates of 33%, 45%, 15%, and 7% in years 1-4, respectively).  You expect to operate the new product line for only three years and then shut down operations.  The salvage value of the equipment at time three is expected to be $385,000. 

The new product line is expected to lead to sales of $1.4 million the first year with inflation of 3% per year for the following two years of operation and to incur annual operational costs of $500,000 in year 1 with the same inflation rate for subsequent years.  Your business has a 35% tax rate and your WACC is 10%.  Determine the time two cash flow.