5 - Coltbrand Inc. recently paid a dividend of $1.50. The company expects to increase their dividend by 3% per year. If the market requires a return of 18% on assets of this risk, what should the stocks price be? Use the Dividend Growth Model, DGM to find your answer.

D0 = $1.50 g = 3% R = 18%

6 - You are looking at a new project and need to decide if your company will want to go through with this investment.

Initial Investment = -150,000

CF year 1 = 65,000

CF year 2 = 45,000

CF year 3 = 60,000

CF year 4 = 55,000

The rate of return on this investment is 11%.

11 - The company also has a number of shares outstanding of common stock. The company has been doing well and is expected to pay a dividend of $3.85 next year. Dividends have grown at a constant rate of 5% and the market expects that growth rate to continue. The price of the common stock at yesterdays close was $58.46. Given this information, and using the Dividend Growth Modal, (DGM), what is the cost of common equity?

12 - The capital structure of this company is as follows: $3,586.000 in corporate debt, $1,350,000 in preferred stock and $6,275,000 in common stock. What is the total Capital Structure? Given these numbers, please figure out the weights of debt, preferred stock and common stock.

13 - Now that you have calculated the costs of debt, preferred stock and common stock and found out the weights of the capital structure, please determine the Weighted Average Cost of Capital (WACC) for the company. One hint: remember, you already have figured out the after cost of debt.

14 - You are looking at a possible investment. The following chart shows: the State of the World, the Rate of Return and the Probability that each occurs. Please complete the chart to determine the expected rate of return and the standard deviation of this investment.

State of the World Rate of Return Probability Exp. Rate of Return Step 2 Step 3

(A) (B) (C) (D) (E) (F)

Recession -63% .08

Below Avg. -11% .16

Average 14% .51

Above Avg. 29% .15

Boom 78% .10