# Fin515 Project Week 7

Pages: 12 (2524 words) Published: March 4, 2013
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...