7 part a

Year 1 2 3 4 5

Free Cash Flow $22 million $26 million $29 million $30 million $32 million

General Industries is expected to generate the above free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 9% and General Industries has cash of $15 million, debt of $45 million, and 80 million shares outstanding, what is General Industries' expected current share price?

	a.	$6.19
	b.	$8.17
	c.	$7.78
	d.	$11.57

part b 10:

Year 0	Years 1 to 10
Revenues		2.90
- Manufacturing Expenses		-0.5
- Marketing Expenses		-0.15
- Depreciation		- 0.5
= EBIT		1.75
- Taxes (40%)		-0.70
= Unlevered net income		1.05
+ Depreciation		+0.5
- Additions to Net Working Capital		-0.4
- Capital Expenditures	-6.00
= Free Cash Flow		1.15

Panjandrum Industries, a manufacturer of industrial piping, is evaluating whether it should expand into the sale of plastic fittings for home garden sprinkler systems. It has made the above estimates of free cash flows resulting from such a decision. There are concerns of the sensitivity of this project to changes in the cost of capital. For what cost of capital does this project break-even? (Hint...Remember what IRR does!)

	a.	8%
	b.	10%
	c.	12%
	d.	14%

part c 11:

the average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard deviation of 15%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

	a.	-12.5%, 17.5%
	b.	-15%, 25%
	c.	-25%, 35%
	d.	-25%, 25%