1)

A firm reports that in a certain year it had a net income of

$4.4

million, depreciation expenses of

$2.8

million, capital expenditures of

$2.2

million, and Net Working Capital decreased by

$1.5

million. What is the firm's free cash flow for that year?

A.

$10.9

million

B.

$6.5

million

C.

$5.3

million

D.

$3.5

million

2)

Vernon-Nelson Chemicals is planning to release a new brand of insecticide, Bee-Safe, that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost

$20 million,

and there will be an additional

$2 million

cost to reconfigure existing plant. The equipment is expected to have a lifetime of

seven

years and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell 1,500,000 gallons per year at a price of

$52

per gallon. It will take

$38

per gallon to manufacture and support the product. If Vernon-Nelson's marginal tax rate is 40%, what are the incremental earnings in year 3 of this project?

A.

$21.0

million

B.

$18.1

million

C.

$10.9

million

D.

$7.2

million

3)

Consider the following price and dividend data for Ford Motor Company:

Date	Price ($)	Dividend ($)
December 31, 2004	$14.73
January 26, 2005	$13.77	$0.12
April 28, 2005	$9.14	$0.12
July 29, 2005	$10.74	$0.12
October 28, 2005	$8.02	$0.12
December 30, 2005	$7.72

Assume that you purchased Ford Motor Company stock at the closing price on December 31, 2004 and sold it at the closing price on December 30, 2005. Your realized annual return is for the year 2005 is closest to:

A.

42.8%

B.

40.5%

C.

45.03%

D.

47.3%

4)

Valorous Corporation will pay a dividend of

$1.75

per share at this year's end and a dividend of

$2.40

per share at the end of next year. It is expected that the price of Valorous' stock will be

$45

per share after two years. If Valorous has an equity cost of capital of

10%,

what is the maximum price that a prudent investor would be willing to pay for a share of Valorous stock today?

A.

$40.76

B.

$42.80

C.

$38.72

D.$34.65