5.

a) A company has a beta of 1.5.The risk-free rateofreturnis 5 percent and the market risk premium is 6 percent.Find the required rate of return on the stock (i.e., the cost of equity capital).

b) The firm will pay a dividend of $4.00 per share next year.The firm will increase the dividend payment by $0.50 a share every year for the next 5 years (i.e., years 2 to 6).Thereafter, the dividends are expected to grow at 5 percent per year forever.What is the firm's current stock value?Use the required rate of return on the stock from (a).

6.A project has the following total (or net) after-tax cash flows.

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YearTotal (or net) after-tax cash flow

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1$1,000,000

21,500,000

32,000,000

42,500,000

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The required rate of return on the project is 15 percent.The initial investment (or initial cost or initial outlay) of the project is $4,000,000.

a) Find the (regular) payback period of the project.

b) Compute the discounted payback period of the project.

c) Find the net present value (NPV) of the project.

d) Find the profitability index (PI) of the project.

e) Calculate the modified internal rate of return (MIRR) of the project.