1. Please read the information below very carefully as it will be used to solve all of the questions on this quiz.

Roberto Inc. is a manufacturing company. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital.The company can issue bonds for 9% coupon rate with 22 years to maturity.The interest is paid semi-annually.The bonds can be issued with a price of $835.42 today.Roberto's marginal tax rate is 40%.For cost of equity, the company uses the CAPM based on SML.The risk-free rate in the market is 8% and the market rate of return is 14%.The company has a beta of 1.1. Roberto is experiencing a highly abnormal growth rate of 30%.This growth rate is expected to continue for four years.After year four, the growth rate is expected to return to a normal 8% and remain constant afterwards for the foreseeable future.Roberto just paid a dividend of $1.15. Furthermore, Roberto is evaluating several projects to invest in. The top project that is being considered will cost $1,000,000 and promises to pay $500,000 in year one, $400,000 in year two, $300,000 in year three and $100,000 in year four. This project will cease to exist with no salvage value at end of year four. So, the cash flow would look like the following:

YearCF ($ in 000's)

1. -1,000 (Initial Outlay)
2. 500
3. 400
4. 300
5. 100

Using the information related to paid dividend, cost of equity and growth outlook for Roberto Inc., what should be the price for this supernormal growth stock today (P0)?

:

$25.32

$39.21

$37.53

$33.42

Using the cash-flows related to the top project Roberto is considering and the WACC you previously calculated, what is the expected NPV for the project (in 000's)?

$53.09

$49.18

$78.82

$109.45

Further evaluating the top project for Roberto, what is the anticipated IRR for the project?

11.8%

14.49%

12.45%

13.02%