1.

Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate g = 4.8%. The firm's current common stock price, P0, is $22.00. The current risk-free rate, rRF, = 4.4%; the market risk premium, RPM, = 5.7%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 9.77%. The firm uses a 3.7% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.

CAPM cost of equity:	____%
Bond yield plus risk premium:	_____ %
DCF cost of equity:	______ %

2.Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 9%.

	0		1		2		3		4
Project A	-1,080		660		300		290		340
Project B	-1,080		260		235		440		790

What is Project A's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. $______

What is Project B's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. $______