1. Given the following information estimate the cash flows and calculate the NPV of the following project. Initial investment is $1,000,000 and the Investment project is expected to last for four years.

Selling price (current price terms)$5.30 per unit

Variable cost (current price terms)$3.15 per unit

Selling price inflation5% per year

Variable cost inflation 4% per year

Forecast sales volume is 300,000 units per year

Nominal discount rate is 9%

2.The ABC company has consistentlypaid out 40 percent of its earnings in the dividends. The company's return on equity is 16%. What would you estimate as its dividend growth rate?

b.If the ROR in the above question is 13%. What P/E ratio would you apply to the firm's earnings?

c.The preferred stock of the Clearance Radiology Company has a par value of $100 and a $9 dividend rate. You require an 11% rate of return on this stock. What is the maximum price you would pay for it?

d.Would you buy the preferred stock in (c ) abovefor $96?

3

a.Given that there are 12,500,000 shares outstanding and the market price of a share is $20., if the book value of the assets is $225,000,000 (The assets are 100% financed by equity). Find the Tobin's Q ratio.Is it worth a buy at $20 ?

b.What will happen to the q ratio if the share price increases to $22? Will the share be overvalued or undervalued?

c.What do you expect will happen to the q ratio in the long run?

d.Given that the current dividend is $1 and it is expected to grow at 12% for 3 years and then at a constant growth of 4% . What is the expected price of the share if the required rate of return is 10%?