Tuesday, July 30, 2013

1. Fresno Corp. is a fast-growing company that expects to grow at a rate of 26 percent over the next two years and then to slow to a growth rate of 16 percent for the following three years. If the last dividend paid by the company was $2.15.
What is the dividend for 1st year?  Round answer to 3 decimal places, e.g. 15.250.)
What is the dividend for 2nd year?  Round answer to 3 decimal places, e.g. 15.250.)
What is the dividend for 3rd year?   Round answer to 3 decimal places, e.g. 15.250.)
What is the dividend for 4th year?  Round answer to 3 decimal places, e.g. 15.250.) 
Compute the present value of these dividends if the required rate of return is 14 percent. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)
Present value

2. Nynet, Inc., paid a dividend of $4.21 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 14.0 percent, what is the current value of the stock? (Round answer to 2 decimal places, e.g. 15.25.)
3. Knight Supply Corp. has not grown for the past several years and management expects this lack of growth to continue. The firm last paid a dividend of $3.89. If you require a rate of return of 16.5 percent, what is the current value of this stock to you? (Round answer to 2 decimal places, e.g. 15.25.)
4. Ron Santana is interested in buying the stock of First National Bank. While the bank expects no growth in the near future, Ron is attracted by the dividend income. Last year the bank paid a dividend of $6.14. If Ron requires a return of 16.5 percent on such stocks, what is the maximum price he should be willing to pay for a share of the bank’s stock? (Round answer to 2 decimal places, e.g. 15.25.)
5. The current stock price of Largent, Inc., is $47.41. If the required rate of return is 22 percent, what is the dividend paid by this firm if the dividend is not expected to grow in the future? (Round answer to 2 decimal places, e.g. 15.25.)
6. Proxicam, Inc., is expected to grow at a constant rate of 7.00 percent. If the company’s next dividend, which will be paid in a year, is $1.83 and its current stock price is $22.35, what is the required rate of return on this stock? (Round intermediate calculations to 4 decimal places, e.g. 1.5325 and final answer to 2 decimal places, e.g. 17.54%.)
7. X-Centric Energy Company has issued perpetual preferred stock with a stated (par) value of $100 and a dividend of 5.5 percent. If the required rate of return is 11.25 percent, what is the stock's current market price? (Round answer to 2 decimal places, e.g. 15.25.)
8. Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,763 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

9. Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for project.
Year Cash Flow
0 -$3,181,860
1 $916,079
2 $941,004
3 $1,182,671
4 $1,164,497
5 $1,504,746

What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)
The NPV is

Should management go ahead with the project? Which project?

10. Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for their production systems. (Enter negative amounts using negative sign, e.g. -45.25. Round answers to 2 decimal places, e.g. 15.25.)
Year System 1 System 2
0 -$14,400 -$44,100 
1 14,400 33,900 
2 14,400 33,900 
3 14,400 33,900 

Calculate NPV.
NPV of System 1 is $  and NPV of System 2 is $ .


Which system should the firm invest?
The firm should invest in  .


11. Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for their production systems.
Year System 1 System 2
0 -$13,100 -$45,900 
1 13,100 34,400 
2 13,100 34,400 
3 13,100 34,400 

What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.)
Payback period of System 1 is  years and Payback period of System 2 is  years


If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest?
The firm should invest in  .





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