15. When determining cash flows, what is cannibalism? 16. The Cactus Pillow company has an investment opportunity that will last for 4 years. The project will require $2,300 of new fixed assets to implement. These xed assets will be depreciated on a straight-line basis over 6 years. Inventory will need to increase by $500 and accounts payable will increase by $200 when this project begins. This project is expected to produce sales of $950 in the rst year and sales are expected to grow at a rate of 6% per year for the remaining life of the project. Total expenses (including depreciation) is expected to be 65% of sales. At the end of 4 years the project will terminate. The fixed assets are projected to be sold for $700 and inventory and accounts payable will return to their preproject levels. Cactus' tax rate is 21%. Cactus' weighted average cost of capital is 12.5%. What are the annual cash flows associated with this project? What is the project's NPV? What is the project's IRR? What is the project's payback period? Should Cactus take on this project? Why? 17. What are the two sources, or components of return for stock? 18. 19. A rm pays out all earnings in dividends. The rm just paid a $1 dividend. The dividend is expected to grow at a rate of 10% per year for the next 3 years. Afterwards, the dividend is expected to grow at a rate of 4% per year forever. If the cost of stock is 14% what is the stock price? A firm has just reported EBIT of $1,000 for the year that has just ended. The firm also recorded $300 in depreciation and made a $500-dollar investment in new machinery. No other changes or nancial information was reported. Going forward the firm expects Free cash ow to grow at a rate of 3% per year. The weighted average cost of capital for the firm is 11.5% and the tax rate is 21%. The rm has 10 bonds outstanding. The bonds have a face value of $100, pay an annual coupon with a coupon rate of 5% and a yield to maturity of 4%. The bonds mature in 4 years. The firm also has 1,000 shares of stock outstanding and $250 in cash. What is the share price of the rm