6) Stock Valuation (L01) Suppose you know that a company's stock currently sells for $59 per share and the required return on the stock is 11%. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividends per share?

8. Valuing Preferred Stock (L01)Big Pond Inc. has an issue of preferred stock outstanding that pays a $4.75 dividend over year in perpetuity. If this issue currently sells for $93 per share, what is the required return?

12.Stock valuation (L01) Taleville Farms just paid a dividend of $3.20 on its stock. The growth rate in dividends is expected to be a constant 5% per year indefinitely. Investors require a 15% return on the stock for the first three years, a 13% return for the next three years, and an 11% return thereafter. What is the current share price.

3.Calculating Payback (L02) McKernan Inc imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should they accept either of them?

Year 0

Cash Flow (A). -$60,000

Cash Flow (B) -$70,000

Year 1

Cash Flow (A). -$23,000

Cash Flow (B) -$15,000

Year 2

Cash Flow A $28,000

Cash Flow B $18,000

Year 3

Cash Flow A $21,000

Cash Flow B $26,000

Year 4

Cash flow A $8,000

Cash Flow B $230,000

4. Calculating Discounted Payback (L03) An investment project has annual cash inflows of $4,200, $5,300, $6,100 and $7,400 and a discount rate of 14%. What is the discounted payback period for these cash flows if the initial cost is $7,000? What if the initial cost is $10,000? What if it is $13,000?

6. Calculating AAR (L04) You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,854,300, $1,907,600, $1,876,000 and $1,329,500 over these four years, what is the project's average accounting return (AAR)?

8. Calculating NPV (L01). For the car flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 11% should the firm accept this project? What if the required return was 25%?

10.Calculating IRR (L05) What is the IRR of the following set of cash flows?

Year o

Cash Flow -$16,400

Year 1

Cash Flow $7,100

Year 2

Cash Flow $8,400

Year 3

Cash Flow $6,900

15.Calculating Profitability Index (L07).What is the profitability index for the following set of cash flows if the relevant discount rate is 10%? What if the discount rate is 15%? If it is 22%?

Year 0

Cash Flow -$14,000

Year 1

Cash Flow $7,300

Year 2

Cash Flow $6,900

Year 3

Cash flow $5,700

Chapter 10

1. Relevant Cash Flows (L01) White OakGarden Inc. is looking at setting up a new manufacturing plan tin London, Ontario, to produce garden tools. The company bought some land six years ago for $3.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $3.9 million. The company wants to build its new manufacturing plant on this land, the plant will cost $16.72 million to build, and the site requires $85,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating the project? Why?

13. Calculating Project OCF (L03) Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset falls into Class 10 for tax purpose (CCA rate of 30% per year), and all the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. If the tax rate is 35% what is the OCF for each year of this project?

14. Calculating Project NPV (L02) In the previous problem, supposed the required return on the project is 12%. What is the project's NPV?

22. Project Evaluation (L01, 2) Your firm is contemplating the purchase of a new $425,000 computer-based order entry system. The PVCCATS is $91,209 and the machine will be worth $30,000 at the end of the five-year life of the system. You will save $130,000 before taxes per year in order-processing costs and you will be a able to reduce working capital by $60,000 (this is one-time reduction). If the tax rate is 35% what is the IRR for this project?

42. Comparing Mutually Exclusive Projects (L04) Suppose in the previous problems that KISC always needs a conveyor belt system; when one wears out, it must be replaced. Which project should the firm close now?