Chapter 7

• ABC Corporation currently pays no dividends on its common stock but plans to pay a dividend of $2.00 a share in 6 years. It then plans to increase its dividend at an annual rate of 3% indefinitely. If your required rate of return is 8%, EXPLAIN (and show with numbers) how you would solve for the maximum price that you would be willing to pay for the stock TODAY.

Chapter 2

• Its just common sense that when a firms expenses go up, its net income will go down. But why is it then that if expenses go up by $100, net income wont go down by the full $100? Use specific numbers in your explanation.

Chapter 14

• One of the ratios in the DuPont Framework is the Equity Multiplier (Total Assets / Total Equity) which is claimed to be a measure of financial leverage, i.e., the use of debt. How is it then that the Equity Multiplier contains no explicit measure of debt? Make up some numbers for two direct total debt ratios--Debt / Assets and Debt / Equity--and show that the Equity Multiplier will move in the same direction as these total debt ratios.

Chapter 10

• Illustrate with specific numbers that the difference between the selling price and the cash flow from disposal or salvage is due to the impact of taxes. Show this for the case in which the selling price is above the book value and for the case in which the selling price is below the book value.

Chapter 9

• Illustrate with specific numbers that the capital budgeting accept/reject decision would be the same whether by use of the NPV decision rule or by use of the IRR decision rule.