1. Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipments estimated salvage value at the end of the project is $9,000. The equipments $23,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $7,000 working capital investment. The companys marginal tax rate is 30%. Calculate the projects net present value using a 12% discount rate.

Net initial investment = ??

Net cash flow for year 1 ~ 9 = ??

Net cash flow for year 10 = ??

Net present value for the project = ??

2. The earnings and dividends of Ned Computer Co. are expected to grow at an annual rate of 15 percent over the next 4 years and then slow to a constant growth rate of 8 percent per year. Ned currently pays a dividend of $1 per share. What is the value of Ned stock to an investor who requires a 12 percent rate of return?

1) Calculate dividend for year 1 ~ 4

2) Terminal value at the end of year 4

3) Current price is the sum of pv of dividend and terminal value.