2. Myra Gordon, a security analyst with the Alexander Portfolio Management Company, must estimate the intrinsic value of Sharpe Bow Company's common stock. She compiled the financial information given below: Sharpe Bow Co. Industry Average Market Sales $2000 Profit Margin 5.2% Market return Rm=10% Net Income $190 Asset Turnover 1.52 Risk free rate Rf=3% Dividends $85 Leverage 1.35 Total assets $1,270 Beta 1.00 Common Equity $755 Shares issued 100 Beta 1.25 Determine Sharpe's sustainable growth given its current financial condition and assuming its profit margin and asset turnover equal industry average. Determine owners required rate of return given Sharpe's current risk and assuming its risk equals the industry average. What is Gordon's estimate of the value of Sharpe's common stock if she believes it will maintain its current condition for three years and begin to resemble the industry average as described in parts (a) and (b).

3. Given the following information for Huntington Power Co. find the Weighted Average cost of Capital (WACC). Assume the company's tax rate is 40 percent. Debt: 4,000 6 percent coupon bonds outstanding, $1000 par value, 30 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. Common Stock: 200,000 shares outstanding, selling for $70 per share; the beta is 1.28 Market: 7 percent market risk premium and 3 percent risk-free rate.

Q4. Thurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.2 million. The marketing department predicts that sales related to the project will be 2.50 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 27 percent of sales. The company also needs to add net working capital of $160,000 immediately. The additional net working capital will be recovered in full at the end of project's life. The corporate tax rate is 30 percent and the required return for the project is 12 percent. Should the company proceed with the project? Compute NPV, IRR, MIRR to support your answer.