1A)

If everything else stays the same, then it must be true that as risk (rates) decreases, present value (price) must what?

Decrease.

Does not change.

Increase.

Cannot be determined with the available information.

Rises and then remains stable.

1B)

Consider a profitable company with an asset that costs $7,000,000 that is depreciated straight-line to zero over its 11 year depreciable tax life. The asset is to be used in a 5 year project; at the end of the project, the asset can be sold for $388,000. If the relevant tax rate is 17%, what is the after tax cash flow from the sale of this asset (after-tax salvage)?

a. 941494

b. 1015065

c. 1016782

d. 971131

e. 924706

1C)

The muggle investment committee at Gringotts bank is evaluating the stock of several companies to add to their portfolio. The common stock of one of the companies is currently priced at $65.29 a share. The company has just paid $2.33 per share as its annual dividend. The dividends have been increasing by 10% percent annually and are expected to continue doing the same. What is this firm's cost of equity? (Answer as a percentage and round to 2 decimals.)

a. 6.99 %

b. 20.45 %

c. 19.85 %

d. 10.56 %

e. 13.93 %

ANSWER