1. General Foods is forecasted to have a beta (measure of market risk) of 1 next year. The risk free rate over the next year is expected to be 1%. The return on the market is expected to be 8%. What is the required return of General Foods based on the firms market risk, calculate the return using the capital asset pricing model? (Similar to part c in the case and this material is covered in chapter 8 on pages 282-287). Write your answer as a decimal.

2. What price would you expect to pay for a stock with a 17.4% required rate of return, 4% rate of dividend growth, and an annual dividend of $2.5 which will be paid next year?

3. What is the dividend next year for a stock that currently pays a $2 dividend which is growing at 6%?

4. Suppose General Foods has decided to enter the soda business and they will require additional capital. Management will finance the project by borrowing $100 million and by halting dividend payments. Management forecasts that free cash flow for the next two years will be -$50, and $35 million. After year 2 the cash flows will grow at a rate of 4%. The current WACC for General foods is 6%. What is the firms price per share given there are 50 Million Shares outstanding?

5. What is the expected rate of return for a stock that is expected to pay $1 dividend next year and is currently selling for $10. The price of the stock next year is expected to be $10.6. Write your answer as a decimal (i.e. do not change to a percent). So if the answer is 5.2% write the decimal equivalent of 0.052).