5. Mighty Mike is planning to save up for a trip to Europe in three years. He will need $7,500 when he is ready to make the trip. He plans to invest the same amount at the end of each of the next three years in an account paying 6 percent. What is the amount the he will have to save every year to reach his goal of $7,500 in three years? (5 POINTS)

6. Consider the preferred stocks for two Utility Companies.

LUCELEC Limited selling at $120 and pays $17.50 in dividends.

GRENLEC Limited selling at $95, and pays $15.00 in dividends.

a. What is the expected rate of return on each of the stocks? (3 POINTS)

b. What is a reasonable price you should pay for each stock considering your required return is 14%? Which of the two stocks should you buy AND why? (3 POINTS)

7. In capital budgeting analysis, why is cash flow used instead of net income? (2 POINTS)