A firm is expected to produce annual net income of $15 million next year, and it is expected to grow by 2% forever. Its depreciation is expected to be $200,000 every year forever without change. Other than that, the firm does not have any other spending items or new borrowings. The firm's cost of equity is 12%. Right now the firm has a total shares outstanding of 500,000 shares. What is the fair price of its stock? (Hint: a growing perpetuity and a perpetuity) $505 $237 $303 $150 An all-equity firm is evaluating a potential project. The project is expected to produce revenues of $50M, $60M, $25M, and $150M respectively for the next 4 years, and incur costs of $20M, $15M, $12M, and $10M respectively for the next 4 years. It needs upfront investment of $100M, which will be depreciated in straight- line (evenly) in the next 4 years. There is NO salvage value for the investment. It also requires purchasing $50M new working capital, and will recoup this working capital at the end of Year 4. The tax rate is 15% flat. For the risk level of the project, it should be evaluated according to firm's cost of equity using CAPM model. The expected risk-free rate is 2%, expected market risk premium is 6%, and the firm has a market beta of 1.2. What is the NPV of this project? $125M $150M $175M $200M A firm's stock is selling at $50 a share, it JUST paid a dividend of $2, the dividend is expected to grow at 5% per year. According to constant dividend growth model, what should be the cost of equity for the firm? 8.5% 9.2% 7% 9%