Chapter 7
1.
What rate of return is expected a stock that sells for $30 per share, pays $1.50 annually in dividends,
and is expected to sell for $33 per share in one year?
2.
A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%. What
might investors expect to pay for the stock 1 year from now?
3.
When valuing stock with the dividend discount model, the present value of future dividends will:
A. change depending on the Ime horizon selected.
B. remain constant regardless of the Ime horizon selected.
C. remain constant regardless of growth rate.
D. always equal the present value of the terminal price.
4.
What should be the price for a common stock paying $3.50 annually in dividends if the growth rate
is zero and thee discount rate is 5%?
5.
What should be the price of a stock that offers a $4 annual dividend with no prospects of growth,
and has a required return of 12.5%?
6.
If next year’s dividend is forecast to be $5.00, the constant-growth rate is 4%, and the discount rate
is 16%, then the current stock price should be:
7.
What constant-growth rate in dividends is expected for a stock valued at $32.00 if next years dividend
is forecast at $2.00, and the appropriate discount is 13%?
8.
What should be the current price of a stock if the expected dividend is $5, the stock required return
of 20%, and a constant dividend growth rate of 6%?
9.
Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for 4
years, aVer which it will face more compeIIon and slip into a constant-growth rate of 5%. Its required
is 14% and next year’s dividends is expected to be $5.00.
10. What would be the approximate expected price of a stock when dividends are expected to grow at a
25% rate for 3 years, then grow at a constant rate of 5%, if the stock’s required return is 13% and next
year’s dividend will be $4.00?
Chapter 8
1.
2.
3.
What is the net present value of a project with the following cash flow s if the rate is 12%?
Year
Cashflow
0
-$27,500
1
$19,400
2
$19,400
3
$5,200
What is the net present value of a project with the flowing cash flows if the discount rate is 9%?
Year
Cashflow
0
-$55,000
1
$21,500
2
$24,750
3
$29,450
Daniel’s Market is considering a project with an iniIal cost of $176,500. The project will not produce
any cash flows for the first three years. StarIng in Year 4, the project will produce cash inflows of
$127,500 a year for three years. This project is risky, so the firm has assigned it a discount rate of 17%.
What is the project’s net present value?
4.
5.
6.
7.
A project has the following cash flows. What is the payback period?
Year
Cashflows
0
-$10,000
1
$1,800
2
$3,600
3
$5,000
4
$6,000
A project has the following cash flows. What is the payback period?
Year
Cashflows
0
-$45,000
1
$20,000
2
$23,500
3
$24,000
4
$25,000
What is the payback period for a project with following cash flows?
Year
Cashflows
0
-$75,000
1
$15,000
2
$23,000
3
$35,000
4
$25,000
The Golden Goose is considering a project with an iniIal cost of $46,700. The project will produce cash
inflows of $10,00 a year for the first two years and $12,000 a year for the following three years. What
is the payback period?
8.
A project has the following cash flows. What is the internal return of rate?
Year
Cashflow
0
-$24,750
1
$9,875
2
$10,250
3
$12,655
9.
A project has the following cash flows. What is the internal return of rate?
Year
Cashflow
0
-$111,000
1
$49,650
2
$52,300
3
$36,450
10. Chasteen, Inc., is considering an investment with an iniIal cost of $145,000 that would be depreciated
straight-line to a zero-book value over the life of the project. The cash inflows generated by the project
are esImated at $76,000 for the first two years and $30,000 for the following two years. What is the
internal rate of return?
11. You are considering an investment for which you require a rate of return of 8.5%. the investment costs
& 53,500 and will produce cash inflows of $20,000 for three years. Should you accept this project
based on its internal rate of return? Why or why not?